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Since September 2020, the FED’s policy allows for a period of inflation over their 2% target: “[…]the Committee will aim to achieve inflation moderately above 2 percent for some time[…]”, which is indicating that they are more concerned about the prospect of too little inflation, rather than too much. So, what temporary inflation level will […]
What inflation level will be accepted by the FED? Read More »
Inflation remains a distant threat as both the output and unemployment gap will remain meaningful in 2021. That said, year-over-year inflation rates will temporarily jump as numbers were extremely depressed at the nadir of the recession. The ratio between copper and gold prices is a gauge of economic confidence and has been pointing upwards. The
No central bank and no government wants to remove economic support too quickly and there is plenty of economic stimulus for companies profit margin to recover over the coming months. This is thanks to the positive effects of operational leverage on earnings. Example: a company has USD 100 in revenues and USD 10 in profits.
With the arrival of the pandemic crisis, the FED had cut rates aggressively close to zero. In addition, it had announced an adaption of its interest rate policy towards an “average inflation targeting” and that it will keep short term rates low for a multi-year period. Since late 2020, the long end of the USD OIS swap curve
US short-term rates don’t move, but curve set to steepen Read More »
Investors seem to be living in the best of all worlds. No central bank or government wants to remove economic support too quickly and monetary policy will remain very stimulative. Joe Biden won the US presidency and besides the House, the Democrats have a chance to even get control of the Senate. The economic recovery
Q1 2021-Quarterly Investment Letter Read More »
Europe is back in partial lockdown and economic volatility is expected to be higher beginning of 2021. At the same time, the European Central bank continues to press on the gas pedal and Eurozone money supply M1 growth is expanding at 14% yoy. These are levels last seen in 2008 and 1999. Money supply is
Europe is back in partial lockdown Read More »
Investment grade (IG) bond credit spreads have further tightened and have reached almost pre-Covid levels. The upside of IG bonds is limited taking into account their embedded “duration” feature. In comparison, spread levels in the high-yield (HY) market are still wider and have more room to tighten. High yield bonds are typically more cyclical in
Investment Grade credit tightened Read More »
During the market rally in November, credit spreads have further tightened and reached almost pre-Covid levels in the investment-grade category, whereas spread levels are still wider in the high-yield market. OAS of broad US investment-grade corporate bonds are now only slightly higher (112 bps) in comparison to the start of 2020 (99 bps). US high-yield
Credit spreads almost at pre-Covid levels Read More »
Year-to-date US high yield corporate rating downgrades accumulated to more than 475 – even surpassing the previous crisis in 2008. The up-/downgrade ratio (proportion of upgrades among total rating actions of Moody’s and S&P) marked a low of 0.16 in Q2 2020 and the accumulated YTD ratio reached 0.25, a similar low level as experienced
Rating downgrade slowed down Read More »
In the first half of 2020, major central banks purchased USD 6 trillion in public and private sector debt. In comparison, the same central banks spent USD 1.5 trillion on quantitative easing measures after the Global Credit Crisis in 2008. However, this was over a time span of 5-years. The massive intervention of central banks
Central banks purchased 6 tln debt Read More »
