The quality of UK financial commentary is always a cause for despair. This comment comes from the FT this afternoon:
The UK government announced its biggest annual borrowing plan in eight years on Wednesday, as Prime Minister Boris Johnson's government turns to bond markets to fund its spending spree.
But investors were unfazed by the prospect of a deluge of new gilts, with many having expected an even bigger rise in issuance with borrowing costs close to historic lows.
Of course they were unfazed.
Firstly that's because they really do not care about the return on bonds right now: they're buying them because they provide just about the only safe savings medium that is available in sterling right now.
Second, for that reason they are desperate for more bonds and are delighted more are going to be issued.
And third, they appreciate the fact that bond issues mean that they government might be providing a stimulus - which the UK economy badly needs.
Of course they weren't phased. Unlike financial commentators they can see the value in more bonds.
And I promise you, there are going to be lots of them.
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I can tell you that a significant proportion of pension schemes, who are the biggest holders of long-dated government debt do indeed care about the yield on those bonds, which is why they have triggers (at higher rates) which bonds will need to increase to, before they will make further purchases to back their liabilities.
Then they’ll risk losing all…
Their members will not thank them
In what way are they ‘risking losing it all’?
Have you noticed what is happening in other markets?
Some markets are temporarily 10-20% down.
Given that pension schemes hold a wide variety of different assets, and that even the riskiest assets are ‘only 10-20% down’, the claim that schemes are ‘risking losing it all’ is somewhat wide of the mark.
No, bonds are up
The rest are shot
Well not exactly..laws of demand and supply definitely apply to gilts. after all think about QE
“Firstly that’s because they really do not care about the return on bonds right now”..this might indeed be right but at some stage it will cause a real problem for holders. I certainly don’t have a crystal ball but the pain, fear and panic will come with inflation..it always does for bonds..we might be in a japanese style deflationary cycle, who knows? But buying a return of approaching zero over a 20yr period, is in my book anyway, is barking mad
No, it says we are stuck in an era of long term zero returns – which we are
And financial capitalism has no way out of it
And the world’s sticking with financial capitalism
So this is wat you get
“No, it says we are stuck in an era of long term zero returns — which we are”..
I disagree. So does Apple and Netflix and 10s of 1000s of high growth businesses
I agree with John Beattie.. the demand for Gilts increases when interest rates fall.. pension funds are stipulated due to their final salary liabilities..final salary schemes for the beneficiaries are are golden, a noose round the neck of the entities with those outstanding
Are all those high growth businesses who massively over inflated the stock market…..
Yes, them, of course
Which managed funds failed to identify….
Well there are plenty of high growth businesses and industries.. measuring the growth is challenging and the volatility of stock prices is part n parcel of trying to quantify all future events so is nigh impossible hence the volatility
Carry on believing it….
Businesses don’t “over-inflate the stock market”.
The stockmarket reflects the value that investors place on business, which is entirely different. That sentiment can change from time to time, as we have seen recently.
With respect, that’s very naive of you
Of course companies try to manipulate their share prices
In what way? Surely that would be illegal?
Oh good heaven’s above
Illegal?
Share buy backs?
Mark to market accounting?
Overstating parent company retained earnings to support dividends the group accounts do not?
How?
Those and much more
Tanya,
You appear to be confused. My point is the opposite to what you’ve stated – DB schemes want to buy bonds to match their liabilities. However, with rates currently so low, many have chosen not to be closely matched.
When gilt yields RISE (i.e. prices fall), then demand for these bonds will increase.
Ok..They have chosen not to but technically they should, and some clearly are. The long end of the bond market is madness
Share buybacks don’t manipulate anything – Of course they may affect the value that investors place on the business, as I explained above.
Please explain how mark-to-market accounting ‘manipulates share prices’?
Deliberately overstating earnings would be fraud, wouldn’t it?
I wish I could share your innocence
Regarding how a company finances its business with clearly depend upon the cost of capital. With long term interest rates so low and , for the most part, credit spreads benign, it is rational to surely finance more with very cheap debt..that is why share buybacks make sense
And, it’s just chance that they inflate share prices?
And, it’s just chance that they inflate share prices?
The point I’m making is if long rates were high and credit spreads were wide then share buy backs would be few and far between..
No they wouldn’t be
They work well for CEO pay packages
‘ No, bonds are up. The rest are shot’
This is blatant nonsense, Richard.
Some government bond markets are up, some corporate bond markets are relatively flat, some corporate bond markets are down a little. Some other bond markets – high yield and EM are fine more. Some other assets like high quality ABS are relatively unchanged.
Plenty of other asset classes are broadly unaffected.
Your claim that ‘bonds are up, the rest are shot’ is demonstrably incorrect.
If you wish to say so….watch this space
EM is fine, is it?
https://click.news-alerts.ft.com/f/content-8562417c-63c4-11ea-b3f3-fe4680ea68b5/aPv_OkUrp8IubeD-AjBitw~~/AAAAAQA~/RgRgTJEpP0ShaHR0cHM6Ly93d3cuZnQuY29tL2NvbnRlbnQvODU2MjQxN2MtNjNjNC0xMWVhLWIzZjMtZmU0NjgwZWE2OGI1P2Rlc2t0b3A9dHJ1ZSZzZWdtZW50SWQ9N2M4ZjA5YjktOWI2MS00ZmJiLTk0MzAtOTIwOGE5ZTIzM2M4I215ZnQ6bm90aWZpY2F0aW9uOmRhaWx5LWVtYWlsOmNvbnRlbnRXCGZpbnRpbWVzQgoAHSkMal5GGnXYUiFyaWNoYXJkLm11cnBoeUB0YXhyZXNlYXJjaC5vcmcudWtYBAAAAAA~
Wow!!
Reading Mr Beattie and Ms Holden reminds me that its not just the Left that tends towards Utopia!!
Please call again is all I can say. Bless………………………….!!
Mr Beattie and Mz Holden are beginning to sound like two medieval scholastics trying to justify Ptolemy in a post-Newton (to say nothing of post-quantum theory!) world.
Would either of you care to post your market foresight of the 2008 Crash as a fair test of your proven market-driven, market-reliant interpretative wisdom (no hindsight please)?
No pressure, of course.
I like it 🙂
And what do you two offer exactly? Apart from laughing at each other’s “wit”..
Informed comment, I would suggest
“And what do you two offer exactly?”
Scepticism.
Tanya
All you seem to be offering is rose tinted spectacles if I may. Ok, you might be trying to cheer us up but the facts are overwhelming and the consequences are so staggering that really the question we should be asking is ‘What are we doing? There has to be a better way’. That is what a rational response is.
But no, there is a good chance that that will not happen because even in this crisis the emphasis will be on making money out of that too, rather than fixing the problem. And so it goes on and on and on.
@ John S Warren
No idea what point you are trying to make.
I don’t recall claiming to offer any amazing market foresight.
What I was highlighting is that claims that “bonds are up, everything else is worthless” (or words to that effect) is demonstrably wrong.
Likewise, pension schemes and insurance investors do not ‘buy government bonds at any cost’ as demonstrated by the high proportion of pension clients who are waiting for yields to rise before completing their hedging programs and the number of insurance companies who have been shifting out of government bonds as the yields have fallen.
Sorry if you missed that point.
You also claimed EM is doing well and I pointed out that money is pouring out of the sector
And markets are down 9% today
But what the heck, you’re the expert, apparently, and those of us who have been saying this had to happen are just wrong
It’s always thus
I suspect John was referring to Emerging Market Debt, the article you referred to was Emerging Market Equity.
He said EM
No, I do not think I missed the point. My point was more philosophical. See my reply to Mz Holden.
Just read his text
“ Some other bond markets — high yield and EM are fine .”
So EM bond markets not equity markets.. you look at the capitalisation of EM Bond markets, vast majority is EM Govt Debt..which has performed ok
I think my comments to Mr Beattie apply as much to you
Informed comment? They perhaps watched the big short on telly and think that’s how it works
Mz Holden,
I confess that I was attempting wit; but acknowedge that it fell, at least in part, on barren ground. Nevertheless, I had a serious point to make. What makes you think that the techniques you have described and to which you routinely have appealed, which I am sure may have served you sufficiently well in your career, actually measure not just the markets that you clearly believe are deeply informative of reality; but actually, and accurately represent “reality”? I confess I am sceptical. There are too many unpredicted crisies or crashes. I would have though that obvious. It would not pass muster in ‘hard’ science.
Physics is the queen of quantitative, predicative science. It measures phsyical reality. Only, physics at least realises that even the relatively stable of the physical world is actually very difficult to measure, the closer we examine it; most of it is hidden. For 300 hundered years, even with the genius of Newton, Maxwell and Einstein it is now perplexed to discover that some strange hypotheses that have turned up to rationalise the conventional wisdom – dark matter, dark energy – it did not even know existed (and is still not sure exists).
Modesty in intellectual matters is a virtue. I respectfully suggest that physics represents a standard of predicative accuracy about which “Finance”, in it wildest moments, cannot even dream. Why? I humbly submit, because “finance” does not possess the methods or tools to measure the reality it aspires to represent. By all means, prove me wrong. I would genuinely welcome the insight. That is the whole point of ‘knowledge’.
Richard,
I already explained that the comment about high yield and emerging market bonds involved a typo that should have referred to ‘down’, not ‘fine’.
This of course highlighted the error in your previous claim about ‘bonds’ being up.
You have as far as I can see explained nothing and have answered none of my questions
In fact, it seems you are simply here to post some rather odd pro market comments that have no substance
That seems to be wasting our time and I think this conversation is over
Richard,
What questions have you posed that I have supposedly not answered?
With respect, I am bored: tell me why you are here, because as far as I can see you claim to be an investment manager (which be definitions means you should have other things today, so please excuse my doubts) and yet you seem to have an extraordinary lack of understanding of anything to do with markets.
Unless you have something useful to say – and so far you have not – as I said, this conversation is over
So no questions after all then Richard?
I’ve simply commented that your claims about ‘bonds’ were very much wide if the mark and highly misleading.
Likewise your claims about investors willingness to buy Government bonds at any price.
I’m sorry if real work experience contradicts your claims.
Are people only allowed to post on here if they agree with you, regardless of what the real evidence actually says?
John
Anyone who has some thinking useful to contribute can do so here
I regret to say that you have not, and so far nothing you have said makes sense when I compare it with markets
So politely, please don’t call again. I like evidence base3d opinion or at last logic and you’re not delivering.
Richard
“I can tell you that a significant proportion of pension schemes, who are the biggest holders of long-dated government debt do indeed care about the yield on those bonds, which is why they have triggers (at higher rates) which bonds will need to increase to, before they will make further purchases to back their liabilities.”
The ‘triggers’ suggest an aspiration to predict the future. Perhaps you can explain why they don’t; but It would be very strange if investments were made that were indifferent to the future. I am not at all clear what you are describing; if only the past, this is not only not very interesting, but from an investment perspective, pointless. The problem is, do all the triggers simply represent the assumption that everyone follows the conventional wisdom; until it changes. What do you think you markets are measuring? How accurate are they? Precisely. Fair question.
The markets measure wishful thinking whose engine is greed, whose roadmap is amorality and where the unseen hand is the credit default swap and political donations to those politicians who will not put a stop to it.