Perspectives Blog

Inflation consternation

Martin Harvey, Fund Manager, Threadneedle International Ltd | November 5, 2013

An inflation slowdown in the Eurozone has prompted calls for central bank action, as reduced liquidity coupled with euro strength threatens the recovery. The expectation of imminent easing by the ECB should assert downside pressure on yields, and lead Bunds to outperform other markets. It is uncertain whether the ECB will act this week; we think any intervention is likely to be verbal, at least at first. October inflation in the eurozone slowe…

Slack and inflation

Zach Pandl, Portfolio Manager and Strategist | July 21, 2014

Today’s low unemployment rate indicates modest slack in labor market, which implies earlier Fed rate hikes and/or more inflation risk. The decline in labor force participation in recent years now looks mostly structural. Investors should remain cautious around U.S. interest rate risk despite a solid first half of 2014. Excerpted from Zach Pandl’s newest whitepaper Structural weakness in labor force participation means there is less slack in th…

Inflation matters

Columbia Management, Investment Team | October 11, 2013

Inflation is deceptive because it acts slowly. Portfolios must overcome inflation to maintain purchasing power. Even in today’s low-inflation environment, holding higher amounts of cash could be costly. Despite signs that the U.S. economy is improving, now is an especially challenging time for investors, especially those in search of income. Historically low yields have made earning income harder, and volatile and/or overvalued markets have ma…

U.S. rates – Waiting for the sound

Zach Pandl, Portfolio Manager and Strategist | May 5, 2014

…ory. Exhibit 1: U.S. Activity Indicator (% annualized growth) We have also seen further improvement in the all-important “gaps”—the difference between the unemployment rate and its structural rate, and the difference between inflation and the Fed’s target. Since the end of last year, the unemployment rate has declined to 6.3% from 6.7%, a period over which the labor force participation rate (LFPR) was unchanged at 62.8% (the LFPR rose in Decembe…

FOMC December meeting scouting report

Zach Pandl, Portfolio Manager and Strategist | December 16, 2013

We expect Fed officials to announce the first slowing of QE at this week’s FOMC meeting The main risk to our expectations is the still-low level of core inflation We also expect the FOMC to pair any slowing of QE with qualitative changes to its forward guidance In the press conference after the September FOMC meeting, Fed Chairman Bernanke offered three reasons for why the committee chose not to slow the pace of its bond purchases: (1) insuffi…

Slow growth: Why is it here and will it stay?

February 24, 2014

…y a developed market phenomenon, this should have more than a passing interest for all investors. True, the global financial crisis unleashed particularly strong deflationary forces, but the drivers of slower growth and lower inflation have largely been in place for some time. Some point to growing income inequality, while others lay blame on a liquidity trap for monetary policy. Still others see the unrelenting swing of demographics as the culpr…

What should U.S. bond investors expect in 2014?

Zach Pandl, Portfolio Manager and Strategist | January 6, 2014

…the start of 2014, market attention is now turning toward growth. Unlike most asset classes, government bonds and other interest rate-sensitive securities tend to perform best when the economy performs poorly—when growth and inflation are falling and the Federal Reserve eases monetary policy. Exhibit 1 shows this relationship using returns over the last three decades. Treasuries show up in the lower left corner, meaning that their returns are ne…