Perspectives Blog

Interest rates — Farewell, liquidity trap

Zach Pandl, Portfolio Manager and Strategist | December 15, 2014

…ng its easing strategies, both the European Central Bank (ECB) and Bank of Japan (BOJ) stepped up their monetary easing campaigns. The ECB cut short-term interest rates into negative territory, introduced targeted long-term re­ nuancing operations (TLTROs) and began purchasing covered bonds and asset-backed securities (ABS). For its part, the BOJ significantly expanded its quantitative easing (QE) program in late October. Central banks in a numbe…

QE worked, but not as advertised

Zach Pandl, Portfolio Manager and Strategist | November 3, 2014

…r the last six years. Besides its ultimate size and duration, the striking thing about the Fed’s experiment with quantitative easing (QE) is that there is still not a firm consensus on exactly how it worked. Academic economists will be busy with this question for years. But from a bond investor’s point of view, there’s enough evidence to make a few tentative conclusions. Early on the Fed’s message about unconventional monetary policy was straight…

Should investors be cheering Japan’s new stimulus program?

Daisuke Nomoto, Senior Portfolio Manager | November 3, 2014

…s capital markets as the government of Prime Minister Shinzo Abe goes all in with its policy actions. Additional easing policies: The first announcement was additional monetary easing by the Bank of Japan (BOJ), ratcheting up its already aggressive campaign against deflation by expanding asset purchases. At a Friday news conference, BOJ Governor Kuroda mentioned that while it may be temporary, there was downward pressure on inflation. He also sai…

U.S. rates — The Draghi floor

Zach Pandl, Portfolio Manager and Strategist | September 8, 2014

…sustained recovery in the eurozone. We suspect that it will take better growth and inflation data, more monetary easing, or both, to re-anchor inflation expectations and restore confidence. But we now know the strike rate for the Draghi Floor, and this marks an important turning point for markets. The economy may muddle through a while longer, but deflation risks will be met with more monetary easing—limiting the odds of Japanification and the up…

Asset allocation: Q4 equity strategy

Columbia Management Global Asset Allocation Team, | October 27, 2014

…supported Source: Bloomberg Moreover, the Fed is set to end its bond-buying program and is no longer engaged in quantitative easing (QE). We continue to advocate careful risk taking as historical analysis suggests solid equity outperformance once the financial players become comfortable with the changes in Federal Reserve policy. While the Fed heads toward the exit, the European Central Bank (ECB) is planning to provide further monetary easing a…

Does Japan’s sell-off present buying opportunities?

Daisuke Nomoto, Senior Portfolio Manager | February 10, 2014

…benomics has already had a bigger impact on the Japanese economy and financial assets than the failed attempt at quantitative easing between 2001 and 2006 (see chart). Inflation has moved back into positive territory, and household income is rising (we expect a roughly 2% wage hike next fiscal year). The underlying trend in economic activity is solid today as shown in industrial production data, the Tankan survey and other economic indicators. Ha…

U.S. rates – Forward guidance taxonomy

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

…existing reaction function. In addition, this year’s guidance is backed up by a very strong form of commitment: quantitative easing (QE). Investors know that the Fed will not raise rates while they are still expanding the balance sheet. Plus, public communication from Fed officials suggests low odds that the pace of tapering ($10bn per meeting) will either speed up or slow down. We can therefore be reasonably confident that QE will continue—and…