Bond Vigilantes

Amidst macroeconomic uncertainties and policy headwinds, Asian investment grade (IG) corporate bonds have demonstrated remarkable resilience and relatively benign drawdowns compared to peers in other regions, despite interest rate volatility and credit challenges in the recent years. This year, Asian IG corporates have also performed largely in line with the US IG corporate bond market, while modestly outperforming the Emerging Market (EM) and Euro IG corporates (in local currency terms). Navigating the path ahead While credit-specific challenges exist, the fundamentals of Asian IG corporates remain…

Since the 2008 global financial crisis, central banks worldwide have responded with strong monetary policy measures to prop up economies and promote economic growth. Central banks have slashed interest rates to zero, some into negative territory, and embarked on a path of quantitative easing (QE). These policies, arguably vital at times to prop up confidence and avoid a catastrophic outcome, have finally induced the stated aim of increased inflation. For years economists had warned that these policies would result in runaway inflation, but the reality…

One of the well-known effects of inflation, albeit seemingly rarely discussed in recent times, is its ability to erode the value of debt. The (fixed or nominal) amount of money one has borrowed begins to shrink in comparison to one’s income as prices, wages, and earnings rise. A rising nominal income increases a borrower’s ability to pay. The same is true of governments. All else being equal, higher prices, wages and earnings all result in higher tax receipts, and therefore should improve their fiscal position….

An inverted yield curve refers to a situation in which short-term interest rates are higher than long-term interest rates for government bonds of the same credit quality. Inversion is considered unusual because, under normal circumstances, longer-term bonds tend to have higher yields than shorter-term bonds.

Today is World Population Day, an event accompanied by some mind-blowing stats. Whilst demographics shift too slowly to matter in a given year, when viewed over a longer time horizon they are a megatrend that investors cannot ignore.

During this Fed hiking cycle emerging markets have been split into two camps. The first group includes sovereigns with investment grade credit ratings, plus the stronger double-Bs (for example, Morocco), whose spreads have not been elevated. They’ve enjoyed market access as and when they need it, albeit at a slightly higher cost than in previous years. The second group includes high-yield emerging markets, a.k.a. the ‘frontier’, who have experienced Himalayan high spreads for well over a year. This group summited and endured the death-zone, but…

With concerns about sticky inflation in the UK and following the Bank of England’s surprise hike to 5% today (versus 4.75% expected), here’s a surprising chart: EM inflation is lower than UK inflation for  the first time in 20 years. Drivers on the EM side: Drivers on the UK side:

15th June marked the 25th anniversary of the £2 coin entering into circulation in the UK. The history of the £2 coin goes back just over a decade more. There were commemorative £2 coins struck for the 1986 Commonwealth Games hosted in Edinburgh – the first sporting event to be commemorated on a coin in the UK.