Why UK 10 years yields may stay low in the face of the BOE rate increase

Posted on 17. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

When Bank of England Governor Mike Carney hinted that the first interest rates rise could come sooner than expected, UK 2 years rates rose 15 bps whereas UK 10 years rates barely moved.

The flattening of the yield curve (showed in figure 1) characterizes a cycle of monetary tightening. When Central Banks tighten monetary policy, short [...]

Increase in equities + decrease in yields: what is behind this joint dynamics?

Posted on 03. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

Since the start of the year, interest rates drifted lower including in core sovereign debts (US, UK, Japan, Germany) while global equities rose. As a matter of fact, the US 10 years rates dropped around 50 bps, the German 10 years Bund rate tumbled 60 bps whereas the MSCI World index increased by 3.3% before [...]

Financial markets directionality and Global Macro opportunities

Posted on 05. May, 2014 by Jean Jacques Ohana in Weekly Focus

Markets directionality may be defined as the propensity of financial assets to trend.

To compute this directionality on a dynamic basis, we first compose a basket comprising an equal number of stocks indices, commodities, currencies and bonds futures. We then calculate, on this set of markets, the average absolute Sharpe Ratios over a three-month horizon. We [...]

Reading the 2014 financial scenarios through the lenses of 2013

Posted on 30. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

A bird’s eye view of 2013 History will help us design some financial scenarios for 2014.
The main financial event of 2013 has been the remarkable decline in financial integration (figure 1) which translates a greater confidence in the financial system. Equities of developed countries have steadily risen whereas emerging markets have tumbled. Commodities-linked currencies have [...]

Financial integration, safe havens and diversification

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

We have already highlighted the paradox of the sharp decrease in correlation combined with the waning of diversification within asset allocation portfolios.

As the systemic decreases, risk premiums get less integrated and returns of assets get more diversified. As showed by figure 1, Riskelia’s Financial Integration indicator has sharply decreased which foretells a decrease in systemic [...]

What to expect from emerging markets?

Posted on 04. Nov, 2013 by Jean Jacques Ohana in Weekly Focus

Since 2011, equities from emerging markets have been the poorest assets performers together with commodities. They are the only assets which have not benefited from the monetary stimulus undertaken by developed central banks. Ironically, emerging assets are also the most exposed to the withdrawal of quantitative easing policies, notably the so called “tapering” hinted by [...]

The rebirth of Japan: hold Japanese stocks

Posted on 28. Oct, 2013 by Jean Jacques Ohana in Weekly Focus

The most important achievement of Abenomics thus far is probably the turnaround of public debt dynamics.

This has not been achieved by austerity (the path taken by the Eurozone, with little success so far) but by increasing the gap between nominal growth and interest rates. Namely, the fiscal and monetary stimuli have raised real growth and [...]

Why Japanese markets are still worth the while

Posted on 16. Sep, 2013 by Jean Jacques Ohana in Weekly Focus

We had warned that a speculative bubble was building on the short yen and long Nikkei bets since March 2013. As showed in figure 1, the bubble has landed and is now back to more neutral level. Therefore, the threat of a brutal reversal is less acute as investors’ expectations are less consensual.

The short yen [...]

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 [...]

Is it the end of the bond rally?

Posted on 13. May, 2013 by Jean Jacques Ohana in Weekly Focus

The U.S. 10-year yield climbed 16 basis points this week, to 1.9 percent in New York. As shown in Figure 1, this increase has been largely due to an increase in real yields rather than expected inflation, pointing to more optimistic anticipations on the US economic outlook. This move has happened after the number of [...]