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.
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?
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.
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.
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?
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.
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.
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.
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?
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.
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.
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?
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?
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.
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.
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?
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.
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.
#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?
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?
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.
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.
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?
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?
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?
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?
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...
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!
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.
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.
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!
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.
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?
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?
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?
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.
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.
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.
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.
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?
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?
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.
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.