Bonds

Strategy

Twin peaks: the law of averages and the zero lower bound

In pricing fixed income securities, a lot hangs on the difference between the mean, median and mode. Markets reflect a probability-weighted average of potential outcomes (i.e. the mean); policymakers typically focus on the single most-likely outcome (i.e. the mode). Thinking carefully about the difference has important implications for how we view interest rate risks.

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Portfolio Thinking

Correlations: when falling below the averages is a good thing

‘Less is more!’ That is what correlation wants to brag about to enhance diversification. However, following the financial crisis, many believe that correlations are at an all-time high – is this the end of low correlations? We think not.

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Strategy

Off the record, on the QT, and very hush-hush

Quantitative easing is a bit of a puzzle. It doesn't work in theory, but appears to have worked well in practice. Should we be worried as that process now edges into reverse with the advent of 'quantitative tightening'?

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Economics

Tremors, tensions and typhoons

The second part of my Asia macro tour swung by Tokyo where in a similar set of meetings I witnessed an even greater sense of belief in the status quo. The impression was that the situation is currently fine, so why make unpopular changes?

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Strategy

The blessing and curse of low interest rates

Low interest rates can be considered both a blessing and a curse. The blessing is that the government yield curve impacts discount rates used across almost all financial assets.  The curse is that they incentivise changes in economic structures (e.g. higher debt) which, in turn, make low interest rates more entrenched. The blessing and curse of low interest rates is therefore that they are (probably) here to stay.

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Portfolio Thinking

Emerging market local currency debt in three charts

Are we starting to see the promise from emerging market local currency debt? Emerging market local currency debt has had strong returns year-to-date but we remain cautious on its future outlook. Here we look at three charts that give us an insight into this asset class.

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Strategy

What can Eurovision tell us about the bond market?

First it was Cristiano Ronaldo at the Euros, now it is Salvador Sobral at Eurovision. Portugal sits proudly on top of the sporting and cultural pile in Europe. Less obvious victories have been apparent in the rapid improvement in its fiscal arithmetic, and the significant outperformance of its bond market.

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