Credit and Rate Analysis
The bear market in bonds is here
The bear market in bonds is here The secular bear market in bonds has begun The jump in US Treasury yields this week marks a secular turning point for bond markets. We believe a long-term bear market has commenced. The source of the sell-off is clear—an improved and more durable global economic recovery, particularly [...]
US Rates: Jan2012 TIC Data Show Flight to Quality Starting to Reverse
US Rates: Jan2012 TIC Data Show Flight to Quality Starting to Reverse Jan2012 TIC Data Show Flight to Quality Starting to Reverse Foreign flows into US assets in January was primarily a US Treasury story, where flows into spread products were mixed outside of a few outlier flows. As one would expect, flows were very [...]
China 2012 Fiscal Policy Outlook
China 2012 Fiscal Policy Outlook The National People’s Congress (NPC) will be held from 5-12 March. The most important decision of the NPC session will be the central government budget for 2012. This note discusses what we expect from the budget. 1. On a cash basis, we expect the fiscal deficit to rise modestly from [...]
European Credit Outlook: Will lots of liquidity really cleanse credit markets?
European Credit Outlook Will lots of liquidity really cleanse credit markets? Fundamental outlook very negative – Citi’s growth forecasts in Europe remain meaningfully below consensus for both 2012 and 2013. At the very least, this is likely to drive a sharp increase in default rates over time in our view. Risks from Greece to [...]
Easy policy for a very long time
Easy policy for a very long time Global central banks keep surprising markets by announcing easier monetary policy than had been expected. This is likely to have very important implications for global economic activity, particularly for financial markets. There are fundamental reasons that may merit easier policy as global inflationary pressures are receding (see figure [...]
Government Bonds: Growth shifts and credit shifts
Government Bonds: Growth shifts and credit shifts We recommend an underweight in government bonds on both a 3- and a 12-month horizon. Government bonds continue to be moderately ‘rich’ relative to our central expectations on the outlook for growth inflation and policies. Both 10-year Bunds and 10-year Treasuries are close to the levels that we [...]
UK Gilts Market 2012 Outlook
UK Gilts Market 2012 Outlook * The Gilt market in H1 2012 will be supported by many of the same factors that came into play in H2 2011: q/q growth will be flat, inflation will be falling back; monetary policy will remain extremely accommodative and the BoE will likely extend its QE Gilt purchases to [...]
US Rate & MBS Strategy: 2012 US Interest Rate Volatility Outlook
US Rate & MBS Strategy: 2012 US Interest Rate Volatility Outlook The themes in Volatility for 2012 are continued de-leveraging in the US, contagion from Europe, potential risks of Currency /Trade frictions should there be a credit-event in Europe, Dodd-Frank, and the Volcker rule. We are neutral on intermediate volatility at current levels, [...]
Chasm: Monetary Policy versus Credit Stress
Chasm: Monetary Policy versus Credit Stress Monetary policy response The financial system is in a fragile state. Some institution, market, or instrument seems always at the edge of breaking down – or just over that edge. Very low interest rates throughout the developed world pose a significant challenge to the profitability of traditional financial business [...]
UK Rates: Market Outlook
UK Rates: Market Outlook Prospects for Gilts are essentially being set by euro zone sovereign developments and the BoE’s QEII. The former is the key for direction while the latter has ongoing implications for curves, breakevens and spreads. Duration With the EU Summit deliberations serving to stabilise broader sentiment we would not be surprised to [...]
