Lower Quality, Lower Duration — A Better Strategy for the Road Ahead?

482538183I think the low yield spreads of today’s bond market – the difference in yield over Treasuries – together with interest rates expected to rise, favors a flexible, value-oriented, multi-sector approach to fixed income investing. I also think that kind of strategy has the potential to provide better risk-adjusted returns than either a single asset-class strategy or an index-based  strategy that is heavily weighted towards government bonds, such as the Barclays Aggregate Bond Index.† Continue reading

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ABBA Time

SwedishMamma Mia!! Yesterday morning (Thursday February 12th 2015) the Swedish central bank (the Riksbank) decided to take a chance on Quantitative Easing (“QE”), cutting the repurchase rate to -0.10% and announcing a bond-buying programme of SEK 10bn (approx. €1bn). The Riksbank will assess the situation on an on-going basis as to whether to conduct purchases in excess of the initial SEK 10bn or cut rates even further. Whilst the rate cut was expected, the enactment of QE was not – a clear SOS signal from the Riksbank that it too has had to admit defeat in fighting deflation. Like the ECB, the Riksbank has a target of 2% for inflation, yet inflation slipped into negative territory in early 2013 and was most recently reported at -0.3% in December 2014. Continue reading

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Strong Jobs Report Joins Improving U.S. Employment Trends

159171378According to the “establishment” survey, payroll employment rose 257k in January; November and December were revised higher by +147k (257k+147k=406k). The normal annual review resulted in 2014 being revised higher by 245k. (Note: the 147k Nov-Dec revision is part of the 245k 2014 revision).

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Central Bank Surprises: Is the FOMC Sounding an Alarm?

180435843The Swiss were first, followed by the Indians, Canadians, Danes (3 times!), Japanese, and Russians (again last week) – central banks are changing policies without telegraphing their intentions in advance. In a period of rising central bank activism and high currency volatility, the Fed might understandably be keeping a close eye on these developments.

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Markets Dance to the Tune of the ECB

126857887The European Central Bank (ECB) followed through on ECB president Mario Draghi’s pledge that it would re-expand its balance sheet by formally launching a quantitative easing (QE) bond-buying program which included sovereign bonds. In essence, it’s €60 billion/month from March 2015 until September 2016 with a commitment to further action if the ECB doesn’t see a “sustained adjustment in the path of inflation”.  Draghi again demonstrated his mastery of expectation management. Continue reading

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