Author profile

Richard Woolnough

Years in the bond markets: 32

Specialist subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

Is it time for the Bank of England to sell corporate bonds back to the market?

On August 4th last year, the Bank of England announced a series of easing measures in response to the Brexit referendum results. They were very concerned regarding a potential slowdown and collapse in both the economy and corporate confidence and so implemented a variety of measures; reducing interest rates, increasing liquidity lines for banks, and reintroducing their gilt and corporate bond p…

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President Trump will be good for the transmission mechanism of animal spirits

The world will soon turn to the inauguration of Donald Trump. For at least the next four years, global investment markets will be focusing on his Presidency. This is always the case when a new President takes over the reins of the most economically powerful country in the world, but why does it feel more important this time?

Firstly, political deadlock has been broken. For the first time since …

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Unconventional interest rate tightening underway in the US economy

Last week, the Federal Open Market Committee (FOMC) decided that despite low unemployment and a sustained increase in breakeven inflation expectations since September, it was appropriate to maintain the Fed Funds rate between 0.25-0.50%. In trying to understand this action, and why the Fed is happy to wait until December to hike rates, a number of theories have been suggested by the financial c…

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With zero yields, the advantages of bonds over cash are gone

When investors buy or sell financial assets they try to analyse likely outcomes. This basically revolves around three main issues.

  1. What is the capital upside?
  1. What is the capital downside?
  1. What income is earned from the security?

The dramatic fall in bond yields means that this traditional approach to investing will have to be examined.

One way to do this is to model real world outcomes. …

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Pre-exit, Brexit, what was it? Why the BoE should delay a change in monetary policy.

Post the Brexit referendum we are in an economic purgatory. The brexiteers are looking forward to a democratic led revitalisation of the economy, while the bremainers fear that the “little England” mentality will leave us isolated and depressed. Most people have an opinion, and the economic opinion that matters the most is that of the Bank of England (BoE). The market has absorbed the news of B…

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Is QE unquestionably supportive for risk assets? I think not.

We have written about quantitative easing (QE) many times over the years, yet there remains more to be said: the great QE experiment is not yet over. Given the result of the EU referendum, speculation is rife as to whether the Bank of England will embark on another round of QE to stimulate the UK economy; arguably making this a good time to debate the efficacy of such strategies.

It’s safe to s…

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Negative rates – a tax on saving? Don’t forget about actual tax

There has been much discussion recently that by introducing negative rates central banks are effectively taxing savings. This is self-explanatory, and is one of the criticisms of how negative rates can distort economic behaviour. This however is not a new phenomenon.  Let’s not forget that money has always been effectively clipped by the traditional enemy of savers – inflation. Fortunately, hol…

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The US economy is not heading for recession, as it’s not FIRING on all cylinders!

There is currently a lot of concern regarding the US economy and its ability to withstand the collapsing price of oil and mined commodities, the Chinese slowdown, and the recent quarter (yes, quarter) point rate rise – or given the current market mood, its ability to cope with a doubling of the Fed funds rate! Whilst high yield spreads are close to recessionary levels, this is skewed by the ene…

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Oil price fall failing to pump deflation

One of the major factors that has enabled inflation to stay low despite the economic strength in major western economies has been the fall in the price of oil. Given the huge price volatility over the past 18 months it is interesting to depict the falling influence of oil on actual end inflation.

In the UK, the most direct way that changes in the oil price affect inflation is through petrol pri…

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The real data – the Phillips curve is alive and well

One of the first rules of economics is that the equilibrium market price is generated by relative supply and demand. Limited supply or excess demand should result in an increase in price. One of the questions that has arisen in the post financial crisis world is why have wages not increased despite unemployment heading towards historically low levels? Given the improvement in data such as headl…

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