3 Things the European Investment Grade Fixed Income Team Talked About Last Week

1. German Short-Dated Bonds Revisited

A couple of weeks ago in our blog we noted how the short-end of the German sovereign yield curve had become very expensive, and wondered if that richening, particularly against swaps, might reverse. Since then, there has been further debate over what is keeping German short-dated yields so negative and so low. Indeed, the whole topic was the subject of a recent speech by ECB Governing Council member Benoit Coure. Here are some of the reasons that are being advanced to explain the richness of German short-dated maturities:

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Should the Fed be More Concerned about Inflation?

Ken Taubes is Chief Investment Officer, US.

We believe inflation is rising more quickly than many appreciate, and that the Federal Open Market Committee (FOMC) risks falling behind the curve. Inflation, including wage inflation, is trending upward in an environment with little labor market slack.
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How Will Trump’s Policies Affect Economic Momentum?

Ken Taubes is Chief Investment Officer, US.

The US may deliver growth of around 2%, as well as modestly higher inflation in 2017. Given Donald Trump’s current focus on keeping campaign promises regarding healthcare, immigration and trade, his broader pro-growth policies of tax reform and infrastructure spending may not have an impact on growth until late 2017, and in 2018.  However, the Trump administration has already begun to implement stimulus through executive orders, rolling back regulations and supporting investment.

In the meantime, we believe the US should enjoy continued solid growth, driven by strong employment and consumption. Real final sales to domestic purchasers in the fourth quarter rose at a 2.8% pace, benefiting from a solid 3.5% in consumption. Strong employment growth and multi-year highs in consumer confidence may continue to support consumption.

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3 Things the European Investment Grade Fixed Income Team Talked About Last Week

  1. Brexit – “Since EU Been Gone”

Song titles are popular amongst financial commentators to describe events in markets, and last week was no different. In our attempts to describe the triggering of Article 50 by the UK, we came up with the above title. Older members of the financial community (like myself) will remember this as a classic 1979 song from Rainbow (with Graham Bonnet on vocals), but the title is actually a nod to Kelly Clarkson, who released “Since U Been Gone” in 2004. It describes a girl who is relieved that her relationship is over. The couple began as friends, and their romance became intense. Continue reading

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Brexit: What is Next after Article 50 Activation

With the triggering of Article 50 of the Lisbon Treaty, the UK has officially started the two-year process that will drive the country out of the European Union. The six-page letter was delivered to Mr. Tusk, the president of the European Council. Let’s sketch a possible timeline of the next check points. Continue reading

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