Breakeven Inflation Analysis. It describes one of the peculiarities of the inflation-linked bond market, which is the dominance of central government issuers.
One of the key economic problems facing inflation-linked markets is that central governments tend to be the major source of net supply of these bonds. This is very much unlike the case for conventional bonds, where non-central government supply is significant. If there is a shortage of private sector duration, it is in the 30-year part of the curve, as the credit analysis of such debt is tricky for most issuers. (Utilities and similar would be the most natural fit, but as the telecom industry showed, even apparently stable business models can be greatly disrupted by new technology, or by CEOs with grandiose schemes.)
Sunday, January 13, 2019
Wednesday, January 9, 2019
Monday, January 7, 2019
Public Debt and Low Interest Rates." It offers a good summary of mainstream thinking about fiscal policy using a variety of models, which makes it interesting as an introduction. My initial comment is that the difficulty with mainstream approaches to this topic are key assumptions that are embedded into models. I am unsure how useful debating the models is when the validity of the assumptions can be questioned.
Friday, January 4, 2019
Wednesday, January 2, 2019
Wednesday, December 26, 2018
For those of us who own equities in our retirement funds, the latest dive in stock prices is somewhat disconcerting. However, the question remains: how significant is this weakness on the rest of the economy? I am in the camp that downplays the significance of the information embedded in stock prices: although very useful in theory, in practice, stock price movements are driven by the herd psychology of investors. Even so, it raises the issue of a recession odds for 2019.