Everyone is talking about the sell-off in bonds these days. Yields on the US 10-year benchmark is up nearly 150bp since April, within touching distance of 5%, and 30-year yields are now just over 5%, up from 3.7% in April. With the two-year yield up just 100bp over the same period, the curve has bear steepened by 50bp, and is now looking to un-invert due principally to a sell-off in long bonds, contrary to widespread expectations of bull-steepening via a rally in the front end. The 2s10s is still inverted by around 17p , but the 2s30s is now—as far as I can see from the close on Friday the 20th of October—just about positive. No wonder that the long bond is on everyone’s mind. Sustained bear-steepening during inversions are rare sights in G7 bond markets, so when they are spotted in the wild, they tend to grab the attention and imagination of investors and analysts. But what does it mean? Put on the spot, I’d say that bond market volatility is underpriced.
Read MoreI have just returned from two weeks of holiday, and I have a lot on my mind. First things first, on the war between Israel and Hamas; emotions are running high and as a result, the quality of initial opinion and analysis is clouded and governed by hard-held priors. That always make for a treacherous information environment, especially in a situation as complex as is the conflict between Israel and its border states, not to mention the political situation in the Middle East as a whole. I am making the following initial assumptions. As long as it is Israel and Hamas pounding each other to a pulp—with devastating consequences mainly in Gaza as the IDF brings the heat—markets will eventually stop caring. The obvious risk is that a bloody conflict between Hamas and Israel spills over into wider military conflict in the Middle East. It is grim irony that Iran recently warned how a heavy-handed response by Israel “could spiral out of control and ricochet into far-reaching consequences”. Teheran is right, and I suspect that it is exactly what it, Hamas, other key actors in the Middle East, not to mention Russia, want.
Read MoreI have a few speaking engagements coming up, prompting me to update my view on the world beyond the borders of the Eurozone, which makes up the day job. One trend that I am looking forward to present to, and discuss with, investors and capital allocators is the tension between signs that the inflation and interest rate shocks are now fading, in a cyclical sense, and the risk that inflation will stabilise above 2%, posing a challenge for monetary policymakers. Will they channel their inner Volcker or fudge the 2% inflation target?
Read MoreThis is the landing page for my most ambitious non-fiction project to date. My writings on demographics are scattered all over this blog—though my master’s thesis is a baseline for a lot of my thoughts—and so, incidentally, is the work of my late friend Edward Hugh on the same matter. Randy McDonald has been stalwartly keeping the old Demography.Matters blog up to date, an effort which is badly in need of a new more modern and well-publicised platform.
I have been thinking about and studying demographics and population dynamics for well over 10 years, and this is my attempt to synthesise my thoughts. I will warm up with a simple account of the demographic transition, posted below, before moving on to the principal components of this process; mortality and fertility. I will then, eventually, examine how demographics drive economic processes, principally via the effect of ageing on growth and capital flows, expanding on the work that I have already done. I will post this work in piecemeal fashion inviting comments as I go along before combining everything into a coherent volume. When Google first introduced its Blogger platform it did so, I believe, under the banner of perpetual beta, a spirit that I agree with. I will post a final, and fully edited, volume eventually, but I also want to draw back the curtain slowly and gradually, if only to keep up the publishing cadence on this site. The meaning of “landing page” in this context is no more than a repository for the list of references and the individual chapters, both of which will be updated here as I go along. Each chapter, however, will have its own independent permalink too.
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