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Uncle Jim’s World of Bonds

Uncle Jim’s World of Bonds

By Jim
There is nothing more fascinating than a fixed income instrument. Nothing. Listen to Jim transport you to a world of convexity, basis points, covenants and debt-to-gdp.

For professional investors only. No advice here. No mention of funds or products. Personal thoughts, not that of any employer.
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Are Central Banks and Governments simply going to cancel outstanding public debt?

Uncle Jim’s World of Bonds

Bring on the Stimmy: Biden & Powell want growth. Also what on earth happened with Europcar’s CDS?
Stimulus, fallen angels, sovereign defaults, and a CDS disaster that will go down in bond market history.
January 15, 2021
2021 Starts With a US Treasury Bond Selloff
Yields are rising, curves are steepening. A big Biden stimulus is expected. Will we get higher Fed rates and inflation though?
January 11, 2021
Uncle Jim’s 2021 Bond Market Outlook
A bumper edition looking at the key issues for bond markets in 2021, and beyond.
December 15, 2020
Emerging Market Defaults: More On the Way? Not Necessarily.
Today I look at EMD’s default experience so far this year, and then at the forward projections for default risk. Also I preview Thursday’s ECB meeting. And Weird Left Finance Twitter gets a shout out.
December 8, 2020
Sherman McCoy, The Bonfire of the Vanities, Gold & Giscard Bonds
Valery Giscard d’Estaing, the former French President, died this week. He was a key player in France’s economic relationship with the US. He also invented the Giscard Bond - linked to gold.
December 4, 2020
A Bad Day For US Treasuries
But a good day for the US economy as the Democrats and Republicans showed that they might be able to work together around fiscal stimulus. USTs sold off heavily. Also today I discuss a new Fed paper on corporate debt overhang.
December 2, 2020
The Maradona Theory of Monetary Policy, and the Man With Maradona’s Shirt
RIP the GOAT. Also today, RPI reform, Tesla, Copper, and Debt Cancellation.
November 30, 2020
Yellen, Brainard & Shelton
Lots of new appointments in the world of US economics to talk about today. Also, RPI reform in the U.K., and pressure on the New Zealand central bank.
November 25, 2020
African Sovereign Debt: a Deep Dive with Gregory Smith
With Zambia having defaulted on international bonds last week, it’s a good time to interview Greg Smith, emerging market debt analyst, and former World Bank African economist. How was the Covid shock for the region, will we see more defaults, and what’s China’s new role in African debt dynamics?
November 23, 2020
Economic Long Covid
I’m guessing we all agree that the recent vaccine news makes a strong economic recovery likely in 2021. But how much long lasting damage - or scarring - has already occurred?
November 17, 2020
Lena Dunham’s “Industry” and that 4% US Treasury Trade...
In today’s podcast we have a new series from the “Girls” star, we have Fed speak, bitcoins, WFH and a HUGE bond auction.
November 13, 2020
Puppies and Inflation
Ok the podcast is mainly about central bank rate expectations, but I also suggest that puppy inflation is not being captured in the U.K. RPI stats.
November 11, 2020
Bicycle Economics
3 things about the market for pushbikes that tell us about the global economy.
November 9, 2020
Bonds stabilise after their US Election rally - but the US$ is falling
Corporate America got the result it wanted - no prospect of regulatory pressure given the Dems didn’t win the Senate. Risk assets rally, but the US dollar is weakening. More Fed cuts to come?
November 6, 2020
US Presidential Election Too Close To Call: but No Blue Wave
A quick morning update on last night’s US elections. US Treasuries rallying hard as fiscal expansion expectations are scaled back.
November 4, 2020
Europe’s “Hamilton Moment”, and Piketty’s new film.
The EU has issued its own bonds. And the film of Capital in the 21st Century.
October 22, 2020
Double Standards at the IMF?
Today I look at sovereign CDS markets given the UK’s downgrade last week, and ask whether the IMF really has changed its tune over austerity.
October 19, 2020
Might the U.K. be downgraded tonight? And memories of 1990s gilt auctions.
Today I look at the newly minted Nobel Economics prize winners, and their work on auction theory. Also Moody’s and the U.K. credit rating, and EMD fund flows.
October 16, 2020
Used Car Prices Up, but US inflation Weakens
Today I look at a weak US CPI print, and an Economist article called “Eternal Zero” about low bond yields.
October 14, 2020
Fiscal Multipliers are POWERFUL at times like these
Today I look at some new IMF research, as well as at a Chinese policy change, and an interview with the ECB’s Lane.
October 12, 2020
Awful U.K. GDP, Technical Analysis for Beginners, & China.
Chances of negative rates have increased in the U.K. after a disappointing growth number for August. It should have been strong given Eat Out To Help Out.
October 9, 2020
Defaults - What’s Priced In Now?
Corporate bonds have rallied massively from the distressed levels we saw in Q2 this year. What are current spread levels telling us about expected defaults?
October 7, 2020
Can Robots Predict Financial Crises?
New Bank of England research says “yes”.
October 5, 2020
Lagarde, Reversal Rate Dynamics and Weak Eurozone Inflation Expectations
Inflation numbers are coming in for September and they are terribly weak in Europe. The ECB is worried. Might they, like the Fed, change their inflation target?
October 1, 2020
It’s the Economy, Stupid.
Who’s really best for the economy, Republicans or Democrats? Paul Krugman has the answer. Also a remarkable academic paper is damning on Central Banks’s QE analysis!
September 30, 2020
Bonds vs Equities - who’s winning in 2020?
Today I look at the year to date total returns of bonds and stocks, as well as at the dispersion of price changes within the official inflation numbers. Bike prices are up 6%, men’s’ suits down 17%.
September 28, 2020
Joe Biden and the Bond Markets
Polls are suggesting that a Democrat “clean sweep” is possible in the US elections next month. If that happens, fiscal spending will rise significantly. In the podcast I look at Biden’s plans, including his future response to China.
September 24, 2020
The Bank of England gets ready for Negative Rates.
Yesterday the BoE told the market to prepare its systems for negative interest rates. There’s likely more QE on the way too. In today’s episode I also look at the latest from the Fed, and China’s possible entry into the WGBI.
September 18, 2020
Japan Special: is Japanification Such a bad thing after all?
Japan is getting a new Prime Minister later this week. Yoshihide Suga will replace Shinzo Abe. What does that mean for Japan’s low growth, high government debt economy. And is Japanification really a terrible outcome for the west?
September 14, 2020
David Graeber’s “Debt: the First 5000 years”. And explaining Sterling’s collapse.
Anthropologist David Graeber sadly died last week. One of his most important works is “Debt”, which challenges our idea of money, and calls for widespread debt forgiveness in society. In today’s podcast I look at that book, and also at the reasons behind the fall in the UK’s pound.
September 11, 2020
The Fed’s New Flexible Average Inflation Targeting (FAIT) Framework
Central Bank inflation targets don’t change very often, so it’s a massive deal when the world’s most important CB changes its goals. The Fed will no longer let disinflationary “bygones be bygones”. That means no rate hikes for a very very long time.
September 9, 2020
The World of Bonds is back! So what happened in August’s fixed income markets?
This is the first episode of Season 2 of the World of Bonds. In it I examine the yield curve steepening we’ve seen, the relentless grind lower in credit spreads, and the stabilisation of the US dollar.
September 7, 2020
Uncle Jim's Summer Bond Thoughts
This is the last episode of Series 1 of Uncle Jim's World of Bonds, although I'll be back over the summer if something interesting happens.  In this longer episode, I look at what bond markets have learnt since lockdown began in March 2020.  And what are the 5 things that I'm going to be reading up about over August?
July 30, 2020
A gold market special - how does today’s new record high for the “barbarous relic” relate to the world of bonds?
July 27, 2020
Evidence That Cutting Rates Below Zero Is Counterproductive?
We’ve got the first study on whether negative rates work from a behavioural point of view. Also today, the new Euro Area Recovery Plan, and a look at credit downgrades.
July 22, 2020
Are pandemics inflationary or deflationary?
You know we like a bit of economic history here, so here’s some evidence from hundreds of years of pandemics, from the Black Death to the flu of 1957.
July 20, 2020
The Deficit Myth by Stephanie Kelton: Part 2. The problems with the book.
We looked at the 6 “myths” around deficits in my last podcast, and the idea that there is no constraint for sovereigns to borrow unlimited amounts in a world of economic slack. Today we look at some of the reviews and criticisms of the book.
July 15, 2020
The Deficit Myth by Stephanie Kelton: Part 1
A special episode focusing on the economic book of the moment, The Deficit Myth. What are the limits to government borrowing? Are there any? In today’s podcast we look at the 6 myths highlighted in Stephanie Kelton’s book. The strongest message? Don’t think of a government like a household.
July 13, 2020
We Asked For a Green New Deal - We Got Half Priced Nando’s (Monday to Wednesday Only).
Today we look at the UK’s new fiscal stimulus measures, and also about the US “ban” on ESG.
July 10, 2020
No Atheists in Foxholes as the Ayn Rand Institute takes a Federal Loan
We also look at COVID adjusted inflation rates, and the strongest U.K. money supply growth since Henry VIII.
July 7, 2020
The New Taper Tantrum: the End of Furlough
The jobs rebound in the US has been strong so far. What happens though when furlough schemes start to come to an end later this year?
July 6, 2020
Gold, Nasdaq, gilts: the 2020 winners so far
A super strong Q2 for all asset classes. In today’s podcast I look at this year’s financial markets performance so far, as well as asking whether Boris Johnson has anything in common with FDR.
July 1, 2020
Yield Curve Control & Currency Depreciation
The Federal Reserve has started to talk about YCC as a possible next monetary policy step for the US. Japan got there first - it’s not actually had to buy many bonds to “pin” yields at zero. Is that a bug or a feature?
June 29, 2020
Is the Bank of England still independent? And explaining ESG outperformance.
Paul Tucker, former BoE Deputy Governor is in the press today worrying that central bank independence is under threat. In today’s podcast we look at his fears, and also analyse the outperformance of ESG investment strategies in the time of COVID. Can we believe the numbers?
June 26, 2020
Angrynomics!!! Eric Lonergan & Mark Blyth’s great new book.
Eric Lonergan & Mark Blyth explain how anger put Trump into White House, led to Brexit and the Yellow Vests in France. And then discuss how negative interest rates allow societies to handle the root causes of all this anger and fear.
June 23, 2020
The 2020 US Presidential Election: Biden’s to Lose?
After Trump’s disastrous Tulsa rally this weekend, it’s time to look at the latest betting odds for November’s election, and also to look at some of the policies that might get enacted in either a Democrat or Republican White House.
June 22, 2020
Gilt Market Special
U.K. debt to GDP just passed the 100% level, and with yesterday’s slightly disappointing Bank Of England policy announcement, there’s going to be a lot of new gilts for the bond market to absorb.
June 19, 2020
The Spinal Tap Theory of Central Banking (“One Louder”). And is there an inflation spike?
Huge rally in credit today on the back of the Fed’s corporate bond buying announcement. Also I look at a couple of academic papers on the lockdown inflation experience.
June 16, 2020
Robin Hood, Robin Hood riding to Hertz’s rescue?
Sports bettors have discovered stocks (or stonks in the vernacular), and defaulting companies might just have found a saviour. For bond holders anyway.
June 15, 2020
“The Looming Bank Collapse”?
Frank Partnoy wrote an article with that title in The Atlantic, and it’s getting a lot of attention. Partnoy says that CLO defaults are coming and they’ll bring down the US banking sector. Is that plausible?
June 12, 2020
Italy’s new GDP linked bond
GDP linked bonds have long been discussed as a good option for governments. Italy is now issuing one, aimed at retail investors initially, but could this catch on?
June 10, 2020
2.5 Million New Jobs
A huge and unexpected boost to hiring in the US last month saw 2.5 new jobs created, sending the unemployment rate down from nearly 15% to 13%. Credit is rallying hard, and US Treasury bond yields are rising sharply.
June 8, 2020
Surprise! The ECB overdelivers.
It’s all about positive surprises at the moment. The economic data is coming in slightly better than expected and the central banks are ramping up the policy response. As a result, risk assets are flying, but government bonds are underperforming.
June 5, 2020
Recessions are Racist
#blacklivesmatter. Economic slowdowns hit black families hard. On one estimate the economic impact of a downturn is 1.9 times more severe for a black family than a white one. Has the Fed got a responsibility here?
June 2, 2020
Brexit, the velocity of money, Christopher Nolan’s cheap 747, ESG.
Something for everyone in today’s bond podcast...
May 28, 2020
Argentina & Hertz - defaults coming thick and fast
Two big defaults in the past few days, and more to come. Today’s episode also looks at rising U.K. debt/GDP.
May 26, 2020
The Psychology of Negative Interest Rates
Normally cutting rates sends a signal that the economy is getting a stimulus, that the amount of interest on savings is going to fall and therefore you should spend, spend, spend. But what if, as we move towards negative rates, it sends the signal that everything is broken and that actually you should save more to protect your family and business even though it will cost you?
May 22, 2020
Negative rates, everywhere
Having been very sceptical about negative interest rates in the U.K. only a week ago, new Bank of England Governor Andrew Bailey seems to be changing his tune. And central banks around the world are also having this same debate.
May 21, 2020
Equity markets and Credit Ratings
With central banks and governments promising to support companies in multiple ways, including even buying the bonds of junk bond issuers, you might think that debt burdens don’t matter anymore. You’d be wrong.
May 19, 2020
Debt Jubilees: Moral Hazard vs Fairness
In ancient times, at times of general economic distress, such as a crop failure, rulers would “wipe the slate clean” and cancel ALL society’s debts. There were winners and losers, but society as a whole benefitted. Coronavirus has caused debt burdens to explode upwards. Might we see something similar in the modern world?
May 15, 2020
Deflation in the USA. It’s here.
Inflation turned negative in April, thanks to collapsing energy prices, but also as demand for consumer goods, like clothing, fell in lockdown. The Fed’s Jay Powell gives a speech today - will negative rates feature in response to negative CPI?
May 13, 2020
Negative US interest rates? That’s what the market thinks.
Negative yields are nothing new for most of the developed markets, but until the coronavirus hit, the US was a significant outlier. Last week the market’s expectations for the Fed shifted into negative territory for the first time ever. Is the Fed ready for the “minus sign”, and what would that do to the dollar’s ongoing strength?
May 11, 2020
Reinhart & Rogoff Revisited
“This Time is Different” was an economic hit when published in 2009. It’s a fascinating look at 800 years of government borrowing. But do the errors in its calculations undermine its message?
May 7, 2020
Why high government bond issuance doesn’t mean higher government bond yields
The US will be issuing around $4.5 trillion of Treasuries and Bills in 2020 - in this episode I suggest we look at demand, as well as supply when we consider what bond prices might do as a result.
May 5, 2020
The Winner’s Curse - do you want to “win” a bond auction?
Today I talk about bond issuance in both the credit markets and in government bonds. What’s the best way of issuing debt so that both buyers and sellers feel happy about the transaction?
May 4, 2020
Is Trump going to default on China’s US Treasury holdings?
There lots of noise this week about the US President’s idea that the Government should default on China’s $1 trillion UST holdings as “revenge” for Coronavirus. OMG.
May 1, 2020
Animal Crossing, zero interest rates, turnips.
Today’s FT has a great article about the slashing of interest rates in this Nintendo Switch game. A monetary policy petri-dish.
April 29, 2020
Defaults & Zombies
The annual Deutsche Bank Default Study came out yesterday. It’s always a brilliant read. Defaults are going to be high this year, but probably no higher than they would have been in the absence of Covid-19. Intrigued?
April 28, 2020
Italy on the credit rating knife-edge. Are the rating agencies too powerful at a time like this?
S&P kept Italy’s rating at BBB, and Italian government bonds are rallying. But with Moody’s also about to determine its possible action on keeping Italy as investment grade or not, the risks of a downgrade remain present. Elsewhere - the Bank of Japan announced unlimited bond buying...
April 27, 2020
Are Central Banks and Governments simply going to cancel outstanding public debt?
I once wrote a blog about the possibility of the U.K. government cancelling the gilts held by the Bank of England as part of the QE programme. Is that now becoming the consensus?
April 23, 2020
Emerging Markets: currencies down, bonds down.
As developed market bond yields retest their all time lows, EM is behaving differently. A dependence on foreign capital flows means that they have seen both their currencies fall, and their bond yields rise. And maybe that defines an Emerging Market relative to a developed market? Also today - oil!
April 22, 2020
Debt monetisation: is New Zealand going to make another world “first”?
The RBNZ suggested last night that they’d consider monetising NZ’s debt. Elsewhere we talk about the fall in bond yields vs currency performance, and the US’s “exorbitant privilege”.
April 21, 2020
Falling oil, first defaults, and “orphaned” Emerging Market debt
Oil prices just collapsed to 20+ year lows, and a couple of high yield energy names have now defaulted, with more to come. In today’s episode we also discuss Central Bank balance sheets, and another Argentinian sovereign default.
April 20, 2020
Extend and Pretend: here come the bank waivers
US companies have aggressively borrowed from their bankers over the last month as their earnings disappear under economic lockdown. The rules of those borrowings allow the banks to put the businesses into default if they breach certain metrics. Many are now breaching, but the banks are pretending it didn’t happen - the scale of the problem is too big to cope with.
April 17, 2020
The Fed buys junk
Last week the US Federal Reserve announced the most startling monetary policy action of any Central Bank in this crisis: it’s going to buy High Yield ETFs, and also will regard Fallen Angels as investment grade!
April 14, 2020
Did...the Bank of England just announce helicopter money?
Well, they’d say not, absolutely not, no no no. But the government is going to start using the BoE as a source of financing and will run up overdrafts at the Old Lady. Twitter has decided that this is the first step towards MMT and helicopter money.
April 9, 2020
The flat Phillips Curve: no inflation in good times, no deflation in bad times?
The “failure” of the Phillips Curve to show a good relationship between employment and the CPI has been a puzzle for economists. Markets are pricing in nearly a 50% chance of US deflation - is that overly pessimistic?
April 8, 2020
World War 2 and the Fed’s Yield Curve Control
The US Federal Reserve pinned the Treasury yield curve at fixed levels during WW2. This caused some dislocations once the war was won, but eventually allowed the Fed to gain independence from the Treasury. With debt levels heading to wartime amounts again is there anything to learn from the Fed’s experiences in the 40s and 50s?
April 7, 2020
No Coronabonds - but the next best thing? And a look at rising UK inflation expectations.
The idea that the eurozone was going to get together to issue Coronabonds to deal with the economic impact of the pandemic was always optimistic - but there’s more than one way to skin a cat, and this week we may see two other pan-European bodies, the ESM and EIB used to borrow cash instead. Also U.K. household inflation expectations leapt in March. Does that have implications for wage inflation when we get through this?
April 6, 2020
Follow the flows
The latest data for client flows in the US mutual and ETF market show that the outflows might be moderating, and that high yield funds are very much in demand right now. Lots of cash sitting on the sidelines though.
April 3, 2020
The Black Death and bond markets
There’s a great Andy Mukhergee article on Bloomberg which looks at the economic impact of the Black Death in the 14th century. It draws on Paul Schmelzing’s excellent Bank of England paper and looks at wages, consumption and borrowing. Today we look at the article and ask whether we should expect the same wage driven inflation when we come out of coronavirus lockdown.
April 2, 2020
How did we go bankrupt? Gradually, then suddenly.
Part 2: yesterday we looked at the extent of fiscal expansions around the world and the impact on debt/GDP ratios. Today we look at the three things governments can do to get debt levels down again when this is all over.
April 1, 2020
Are we all going bust?
Part 1. Sovereign Debt to GDP ratios are going to increase by 10% to 25% over the course of this coronavirus crisis. It’s the right thing to do, but when this is all over how are we going to repay those bonds? In this episode I look at the scale of the problem; tomorrow, the solutions.
March 31, 2020
Not now, credit rating agencies!
Fitch downgraded the UK’s credit rating on Friday, citing the increased borrowing it will need to take on the pay for the Coronavirus economic package. Is the U.K. really in increased risk of default as a result of the virus? Can rating downgrades be self-fulfilling prophecies?
March 30, 2020
Fallen Angels
It’s expected that there will be hundreds of billions of dollars of investment grade bonds getting “junked” this year as economic conditions deteriorate. Ford was downgraded to high yield yesterday. How much more is to come?
March 27, 2020
Coronabonds: is Europe ready for jointly guaranteed debt yet?
9 Eurozone nations have suggested that the bloc issues jointly guaranteed bonds to help finance the response to Coronavirus. Germany isn’t keen - yet. Where would bonds like these trade compared to bunds? Elsewhere - Ford gets downgraded to junk.
March 26, 2020
Them’s the breaks.
US inflation expectations have COLLAPSED through this crisis, and some market expectations for future prices elsewhere in the world are now anticipating deflation. What’s driving the fall, and how do we measure it.
March 25, 2020
More defaults than the Great Depression?
The level of defaults priced in to corporate bonds - both investment grade and high yield is pretty extreme. How does it compare with the worst periods in history?
March 24, 2020
March 23, 2020
March 23, 2020