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.
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?
The Scottish independence referendum in September 2014 was billed as a “once in a generation” event. Two and half years later, and we are now faced with a possible second vote. The politics of the case for independence may have been shaken up by the UK’s decision to leave the European Union, but the economics have also been shaken up by the collapse in oil prices.
Over the past few weeks we have frequently debated the likelihood of 'helicopter money'. However, I have noticed that people tend to use the term to mean many different things. What some people call a helicopter, other people would hardly call a drone. In light of this I think it might be helpful to answer the question: what does helicopter money really mean?
Until the European Central Bank (ECB) changes the rules associated with sovereign bond purchases, the duration of its holdings will steadily increase. This introduces a self-reinforcing dynamic. When yields drop, the ECB is forced to buy more, putting further downward pressure on yields.