Capital Daily

Capital Daily

Capital Daily

New German government may affect BTPs more than Bunds

We think the new German Government will not have a significant impact on the outlook for German Bunds. But at the margin, the uncertainty surrounding its stance in the upcoming negotiations on reforms to the EU stability and growth pact adds to the reasons to expect the spreads of euro-zone “peripheral” government bonds over German Bunds to widen somewhat over the next year.

8 December 2021

Capital Daily

What to make of recent developments in China

We doubt that recent signs of policy easing in China are a precursor to a sharp rebound in either credit growth or the country’s economy. That in turn informs our forecast that government bond yields there will fall further, and our downbeat view of the prospects for the “risky” assets which are especially sensitive to its business cycle.

7 December 2021

Capital Daily

Fed policy, the Treasury yield curve, and term premia

The recent flattening of the US Treasury yield curve mainly reflects a renewed plunge in long-dated term premia, at least based on one set of estimates published by the Fed. Its “risk-neutral” counterpart has not followed suit, and the “terminal” policy rate implied by risk-neutral yields is not implausibly low.

6 December 2021
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Capital Daily

Payrolls and the flattening Treasury yield curve

The ostensibly disappointing November US Employment Report released today has not dented expectations for near-term monetary tightening in the US at all, perhaps because of the growing signs this week that Fed officials have become more concerned about inflation. If policymakers are indeed determined to press ahead with tightening next year, even as the recoveries in the economy and labour market potentially slow, we could well see the Treasury yield curve flatten further.

Capital Daily

We see little upside for developed market corporate bonds

Even if the global economy proves fairly resilient to Omicron, we don’t think that there is much scope for corporate bonds to perform better than government bonds over the coming years.

Capital Daily

Omicron & Powell present risks to our Treasury yield view

The spread of the Omicron variant and Fed Chair Powell’s latest comments to Congress both present some downside risks to our view that the 10-year US Treasury yield will end next year some way above its current level.

Capital Daily

Omicron, Powell and the US dollar

With financial markets already firmly in risk-off mode following the emergence of the Omicron variant, Fed Chair Powell’s suggestion that the FOMC may still increase the pace of policy tightening has added further pressure on risky assets and reversed much of the dollar’s weakness over the past few days. Should policymakers stick to their guns on policy tightening, we may well see further dollar strength in the coming weeks.

Capital Daily

Inflation compensation, oil prices and the Omicron variant

News of the “Omicron” variant of the coronavirus may have hit both inflation compensation and oil prices recently, but we suspect the correlation between the two will be weaker over the next couple of years than it has been in the past.

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