Why did bonds sell off and yields rise?

184902753Views from the European Investment Grade Fixed Income team

Numerous reasons have been advanced for the rise in bond yields, ranging from credible to not very credible. Let us look at some: Continue reading

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Chinese Rates – What’s Next?

187927625A View from the Emerging Markets Desk

Following several months of disappointing inflation data, the Chinese Central Bank moved to cut rates on Sunday. The People’s Bank of China (PBoC) cut the benchmark interest rate by 25bps, the third cut in five months. The move reduces the one-year lending rate to 5.1% and the one-year deposit rate to 2.25%. In an effort to protect bank deposits, the PBoC also adjusted the deposit rate ceiling from 130% of benchmark to 150% of benchmark. Continue reading

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European Equities: What a Quarter!

122401083European equities rallied impressively during Q1, delivering just short of 15% – a move driven by the announcement (finally!) that the European Central Bank would enact Quantitative Easing (QE).  This support, coupled with renewed signs of life in the European economy, paved the way for significant shift of assets into European equity markets. But after a return of this magnitude, the question investors are asking us in the European Equity team is; where can the asset class go from here? Continue reading

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Dovish Fed Resets Outlook For Risk Assets

United States federal reserveThe market’s initial reaction to Wednesday’s FOMC meeting was consistent with a dovish interpretation. U.S. Treasury yields declined and the dollar underperformed. However, as market participants digest the information, much of the initial moves have been retraced.

Following the meeting on March 18, investors reset their expectations of rate hikes in coming meetings: from March 12 to March 19, the market-implied probability of a June hike fell from 20% to 12%, and of a September hike fell from 53% to 42%, while the probability of a rate hike in October increased.

The notable highlights in the announcement were the removal of “patient” from the FOMC statement, and the lowering of their median forecast for the Fed Funds rate. We believe the removal of the “patience” wording suggests that a rate increase in the June or September period is likely. Furthermore, the exclusion of the word “patient” allows the Committee to respond quickly to any upside surprises in employment or inflation. Even as the Committee has moderated its forecast of appropriate rates, it has removed self-imposed constraints on action.

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Who Buys Bonds With Negative Yields?

180435843As part of the European Investment Grade Fixed Income team, some very common questions we are asked as we meet investors and clients are; why would anyone buy a bond with a negative yield? Why buy a bond that is guaranteed to lose money if held to maturity? Continue reading

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