Holidays often give you perspective. I write this blog post while enjoying a sunset looking out over the plains of the West Cape in South Africa. With calls for increasing fiscal leniency potentially growing louder, we believe that we are already on the way to helicopter money. If this proves to be the case, what could the implications be for different asset classes?
The regulatory regime that applies to US money market mutual funds is changing significantly in mid-October. The side effect of this change has been a notable increase in bank funding costs (i.e. higher LIBOR-OIS spreads). While they are relevant for US credit investors, these recent developments tell us nothing about market concerns around bank solvency.
Investors are in a massive search for carry as an increasing percentage of the bond markets is generating negative yields. This, amongst other factors, has fuelled huge inflows into emerging market debt (EMD). We are long hard currency EMD and the position has benefited from this search for yield. We wonder, however, has EMD now become too expensive?