Why shorting US government bonds is not a good idea

Posted on 29. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The reward of government bonds is made of three parts:

The difference between the yield and the funding rate (assuming that no Fx risk is kept and that the currency is funded at the Libor short term rate).

The curve roll down, which is derived from the steepness of the curve at the point of the yield [...]

If you insist on betting against France, you’d better short the euro than short the French OAT

Posted on 15. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

With the new downgrade of French debt by Fitch, the discussion of an “imminent attack of French debt” will with no doubt come back to the surface.

France was predicted to go under a number of times before: when it was downgraded for the first time by S&P in January 2012, when French president Hollande was [...]

Developed vs. emerging stocks: mind the gap!

Posted on 08. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The divergence between the trends of connected assets conveys a very different type of information than the decorrelation between their daily returns. While the latter corresponds to a genuine change of status (e.g. one of the assets shifts from “risky” to “safe haven” or the other way round) and is very rarely observed, the former [...]

Review of the troops after the liquidation

Posted on 01. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The global selloff which hit all asset classes at the same time made significant damage in term of financial stability.

As stated by Riskelia since March 2013, many assets were in bubble territory, in particular risky debts and equities. As showed in figure 1, equities’ exuberance is presently over.

Liquidity has clearly tightened in key systemic links [...]

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 [...]

My name is “Bond”, guess my first name

Posted on 22. May, 2013 by Jean Jacques Ohana in Weekly Focus

Stories about the burst of bonds bubble have recently flourished as US interest rates have risen over the last weeks. We show in this study that bonds are not a homogeneous asset class. We have chosen to map corporate credit debt, sovereign and emerging bonds along two dimensions:

The first dimension characterizes the “risk on” or [...]

What are the implications of the commodities’ debacle?

Posted on 15. Apr, 2013 by Jean Jacques Ohana in Weekly Focus

Commodities have been the poorest performer of all assets classes since 2009 which marked the recovery from the Lehman crisis.

This lackluster performance was first attributed to the persistent steep curve (contango) which penalizes the so called “commodities’ passive investors” rolling over long positions in baskets of commodities futures contracts.

Now, the poor performance is due to [...]

Commodities dismal performance conveys global deflation pressure

Posted on 02. Apr, 2013 by Jean Jacques Ohana in Weekly Focus

Despite supportive liquidity and global monetary easing from Central Banks, commodities have been unable to perform since 2011. Commodities had the worst returns among every asset class over the past 250 days. Commodities, currencies and basic resources equities sectors have been under pressure, as illustrated by figure 2.

The poor performance of cyclical markets such as [...]

Deflation by a coordinated fiscal retrenchment

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

Italian massively voted against the current Eurozone doctrine as Beppe Grillo and Berlusconi who both supported anti-austerity programs gathered more than 55% electors. As usual, Italian voters have been despised by the Eurozone technocrats and the German policy makers, in accordance with the typical denial which prevails in Eurozone policy. For instance, Mr. Steinbrück, the [...]

Why passive investors have so far taken the upper hand… and why this is not sure to last

Posted on 26. Nov, 2012 by Jean Jacques Ohana in Weekly Focus

The rationale behind volatility-weighted allocation strategies is to allocate risk evenly across a diversified set of assets in order to make the strategy robust to various macroeconomic configurations. As showed in figure 1, the assets may be classified into four main clusters:

The risky assets represent equities and assets linked to global growth.

The inflation-protecting assets consist [...]