· China inflation eases…….China reported a slowing in its inflation rate in
April to 1.8%.
What’s the
point? The easing of the inflation
rate theoretically gives China more leeway to reduce interest rates to
stimulate its slowing economy. We note that the European Central Bank stated
yesterday that it would likely cut interest rates in order to combat low
inflation. So “the point” is that we remain in an environment in which
deflationary forces and inflationary forces are still fairly balanced. This
tension between these countervailing forces is another reason why we expect
inflation to remain subdued this year. Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140508&id=17603865
·
Low volatility bond market…….Bond trading these days has become a pretty boring
activity. Volatility is low, trading volume is low, and bond prices are pretty
stable.
What’s the
point? To the surprise of many, bond
yields have actually declined in 2014. The 10-year Treasury yield has declined
13% so far this year. There are several reasons for this: 1) ultra low rate
policy on part of the Federal Reserve; 2) uncertainty over rate of global
economic growth. We believe interest rates most likely bottomed in July 2012
and we expect to see rates increase gradually as economic growth strengthens.
This has implications for bond investments. We have reduced duration of our bond
holdings and continue to believe this is the appropriate strategy with respect
to bond investments. The time to extend duration would most likely be in
anticipation of a recession, which we currently do not expect perhaps for
several more years. Link: http://www.bloomberg.com/news/2014-05-09/wake-up-bond-traders-market-is-a-volatility-free-bore.html
No comments:
Post a Comment