Government bonds

Strategy

Eureka: the Archimedes principle

Is there an Archimedes principle at play in financial markets? As central banks withdraw liquidity by shrinking their asset holdings, does it inevitably imply bad news for investors? We look to theoretical, historical and contemporary clues to find out.

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Economics

Let's Twist Again

The long-end of the US yield curve is at its flattest for over a decade, risking distortions in the economy as the Fed raises rates. If this continues, at what point will the central bank get its dancing shoes on and consider Operation 'Twist Again'?

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Macrobites

Italy: too big to fail, too big to bail

 

Political risk is back with a vengeance in Italy. As the third largest global issuer of government bonds after the US and Japan, the country is too big to be allowed to fail without severe contagion to the global financial system. However, it is also too big to bail out comfortably using tried and tested mechanisms.

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Strategy

Five Star Radio

The new political paradigm has thrown up another populist government in Italy, threatening the European project. Meanwhile in the US, could "Operation Twist Again" come into play as investors stress about ever-flatter yield curves?

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Strategy

Land of slope and glory

The US yield curve has consistently flattened since the Federal Reserve began tightening monetary policy several years ago. History strongly suggests that this is an entirely normal market reaction to a rate hiking cycle. If short-term interest rates continue to rise at the pace we expect, we could well be looking at an inverted curve by the middle of 2019.

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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

Car-ry on spending?

Just like cars, it costs more to maintain an older person than a younger one. Government borrowing could rise by 3% of GDP over the next 20 years as a result of ageing. To offset this, the UK government has squeezed the rest of the public sector in an attempt to balance the books. This seems politically unsustainable. Is the government about to reverse course by ending public sector pay caps?

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