Our opinions - as we form them

 

 

Welcome to BondTalk – Kames Capital’s dedicated fixed income blog.

It provides regular insight into the ideas, debate and opinion behind our portfolios and strategy,
straight from the fixed income desk.

Comments are illustrative not portfolio specific; the blog’s purpose is to be relevant,
thought-provoking and interesting.

 

Challenging consumption in the US

Challenging consumption in the US

We should not totally dismiss the weakness in Q1 GDP in the US. Private consumption disappointed – no question about it – while inventories detracted 1% over the quarter. But there were also reasons to celebrate. We saw a healthy increase in investments – and since an...

Netflix launches Billions

Netflix launches Billions

OK, so “Billions” is actually produced by Netflix competitor Showtime, owned by CBS and broadcast in the UK by Sky Atlantic. However, yesterday, Netflix issued its debut bond into the Euro market with €1bn of 3.625% 10 year bonds using its B1 rating.  What is unusual...

Will there be a rate increase in the Eurozone?

Will there be a rate increase in the Eurozone?

On Tuesday this week the European Central Bank released their quarterly Bank Lending Survey for the Eurozone. This is a comprehensive document available in the ECB’s website that covers the lending behavior of 140 banks across the Eurozone. Click here to view.  The...

Step out of the shadow

Step out of the shadow

We believe there is a long shadow of the 2008 Global Financial Crisis (GFC) that still prejudices investor sentiment to risk and return within corporate bond markets. Recently we were asked about default rates in investment grade credit, and what impact this had on...

The Sleepy High Yield New Issue Market

The Sleepy High Yield New Issue Market

The chart shows the proportion of new debt raised in the high yield market that is used to refinance existing borrowings, rather than for more speculative purposes such as capital projects, mergers & acquisitions, and returns to shareholders. Refinancing is the...

Starting the Final Lap

Starting the Final Lap

The final lap of the race for the French presidency has started. Emmanuel Macron with 23.75% of the votes and Marine Le Pen reaching 21.53% will compete for the second round of the French presidency on May 7. Voter turnout was 78.69% versus 80.42% in 2012. French...

UK election – Bypassing the bond market, again

UK election – Bypassing the bond market, again

Election announcements make good theatre. A rushed press conference, lectern in the middle of Downing Street, searing Prime Ministerial looks and boom – a snap election for June 8. In years gone by, such uncertainty was a source of material volatility to all markets,...

US inflation – letting off a little steam

US inflation – letting off a little steam

The inflation surge as evidenced by the TIPS market (US Government Treasury Inflation Protected Securities) that started around September ’16 has taken a bit of pause and has actually has started to reverse. Undoubtedly there were some Trump effects to the inflation...

The coupon’s round trip

The coupon’s round trip

A few days ago we wrote about the possibility of the US Federal Reserve not reinvesting maturing bonds in its QE programme. Over time this would see the Fed’s portfolio of bonds reduce to zero (a very long time). This debate is about the reinvestment of maturities,...

The end of sterling corporate QE

The end of sterling corporate QE

The Bank of England is within sight of the end of its corporate bond purchase scheme, a year ahead of schedule, having bought in excess of £9.1bln worth of bonds since the end of September last year.  Given the relatively robust performance of the economy since...

To reinvest or not to reinvest

To reinvest or not to reinvest

Last night the US Federal Reserve debated its $4.5 trillion balance sheet. This discussion has started to gain momentum with the change of politics on Capitol Hill at the end of 2016, and with one of the Fed governors William Dudley already indicating that 2018 may...

Pointing to healthy levels of economic growth

Pointing to healthy levels of economic growth

The March survey PMIs (Purchasing Managers' Index) continue to point towards healthy levels of economic growth. Encouragingly, the pick-up in activity is very broad-based across developed and emerging market economies. In GDP terms the current level is associated with...

UK high yield retail – are you being served?

UK high yield retail – are you being served?

UK retailers are facing significant pressures over the coming years – from the rise in business rates, higher supplier costs due to weaker sterling, and the new national living wage; to the expected continued growth of online retailers like Amazon and Asos. Given all...

French politics – where the mud sticks

French politics – where the mud sticks

In France, the National Front is stronger than ever. The rejection of the elites, the international military tensions (Chinese sea, NATO troops in Romania and in Poland) and the effect of globalisation could lead Marine Le Pen to an important score in the looming...

Kondratieff

Kondratieff

On Tuesday we hosted a conference where we heard from our own team and a couple of economists. Chris Watling at Longview Economics takes a, well, long view. He is quite a proponent of Kondratieff. Who he? Starting at the end, he faced Stalin’s firing squad in 1938 at...

German yield curve on a rollercoaster ride

German yield curve on a rollercoaster ride

The shape of the German yield curve has seen a rollercoaster ride in the last 12 months.  The ECB’s QE programme caused the curve to flatten as the national Central Banks bought their allotted amount of bonds across the curve, with the ECB’s rules excluding the buying...

Can your gilt tracker do this?

Can your gilt tracker do this?

The Bank of England re-started its gilt buying operation in August 2016.  This action was taken to provide insurance against an anticipated slowdown in the wake of the EU referendum vote.  As part of the QE programme the Bank also re-invests the proceeds of the...

Why the WIRP screen is misleading for US hikes

Why the WIRP screen is misleading for US hikes

There has been some chat in the press over the past days suggesting a 50% chance of a hike in March. We think this is a little misleading. A well-used analytical tool on Bloomberg shows a 50% probability, but this number uses the midpoint between the upper and lower...

What’s wrong with the bond market?

What’s wrong with the bond market?

The last few months have seen some dramatic changes. Lots of attention has been paid to the Trump team line up; much political capital spent on Britain's Brexit Bill being pushed through the UK Parliament. Given these events along with upcoming European elections, you...

A million miles apart

A million miles apart

The scores were in today for Europe’s 2016 GDP. A mildly disappointing 0.4% growth in last quarter took the full year’s growth in 2016 to 1.7%. Not bad but short of the achievements in the US and UK where growth measured more than 2% for 2016. Digging deeper and an...

Overreaction, or complacency?

Overreaction, or complacency?

Italian government bonds are peripheral European investments and trade as such – they have embedded risk and are correlated to credit risk over the long term. But this relationship has broken down over the last few months. The following graph tracks the Italian spread...

Removing the cover of low inflation

Removing the cover of low inflation

Eurozone CPI has picked up quite dramatically in recent months from 0.5% in October 2016 and just 3 months later to a very respectable 1.8%. Ok, most of this is base effects of energy and food inflation coming through, but the average CPI rate in the Eurozone has only...