2013 vs. 2006 or 2008: an air of déjà vu?

Posted on 24. Jun, 2013 by Jean Jacques Ohana in Weekly Focus

While the bonds’ selloff polarizes investors’ attention, some major forces point to a deflationary outlook in other asset classes:

As showed in figure 1, the US 5 year breakeven inflation rate dived to 1.67%, well below the Fed’s objective of 2%. As Bernanke eventually clarified the Fed’s monetary policy, there is nothing to expect from the [...]

Deleveraging dead-end

Posted on 17. Jun, 2013 by Jean Jacques Ohana in Weekly Focus

The best way to describe the ongoing market meltdown is through the lens of the performance of a typical risk-parity strategy. The latter consists in designing a dynamic portfolio which allocates the risk evenly across different types of asset classes for example equities, commodities and the so called fixed income futures (US, UK, Germany). Within [...]

Higher real rates sow the seeds of their own destruction

Posted on 10. Jun, 2013 by Jean Jacques Ohana in Weekly Focus

Deflationary signs are accumulating, casting a shadow on the sustainability of the current interest rate rally.

First, the breakeven inflation rate has plummeted, with the 5 year forward breakeven rate approaching the trigger of the three most recent Fed interventions (Figure 1).

Second, the bond deleveraging has spread to emerging bonds, which have suffered from the rally [...]

Bonds deleveraging and spring clean up

Posted on 03. Jun, 2013 by Jean Jacques Ohana in Weekly Focus

We have downplayed the bonds’ deleveraging stating that the objective of Central Banks, and the Federal Reserve in particular, was to maintain negative real interest rates. Meanwhile, the interest rates have sharply risen in the US.

The rise in interest rates is for sure not related to doubts about US solvency (as the US CDS drifted [...]