One common theme in market commentary of late has been the unprecedented use of the word unprecedented! One thing that used to be unprecedented and is now commonplace is central banks buying corporate bonds. Now this seems to have become conventional monetary policy, it is worth asking “why?” and “is this appropriate?”.

The COVID-19-induced slowdown of the past few months has been different from past crises for a number of reasons. One of the most significant differences has been the greater ability of emerging market central banks to provide support to their economies, as we wrote about a few weeks ago. An interesting example is that of Indonesia. Last week, Indonesia’s central bank (Bank Indonesia – “BI”) cut its main interest rate (its seven day repo rate) by 25bps, from 4.25% to 4%. This was the second consecutive 25 bps rate cut in two months, the fourth this year, and brings Indonesia’s interest rates more in line with its Asian peers. Like many other central banks, BI has had to perform a delicate balancing act between supporting the economy during the pandemic and maintaining investor confidence and a stable currency. Indeed, given 40% of total corporate and government Indonesian debt is denominated in foreign currency, ensuring a stable rupiah is critical to the country’s economic...

As the economic fallout from the coronavirus pandemic continues, almost one-third of U.S. households, 32%, have not made their full housing payments for July yet, according to a survey by Apartment List, an online rental platform.

About 19% of Americans made no housing payment at all during the first week of the month, and 13% paid only a portion of their rent or mortgage.

Covid-19 has taken lives, dramatically reshaped the way we live and work, and challenged our view of a safe and stable world. Those of us who work in investment management, especially high yield fund managers like myself, have seen the pandemic put many businesses under severe financial stress. British high-end sports car maker McLaren was one of them. The company’s activities have been badly disrupted and the company’s liquidity came under extreme pressure. It urgently needed to raise hundreds of millions of pounds of cash, despite having recently launched a strategic cost cutting and capex reduction plan.

You can add location information to your Tweets, such as your city or precise location, from the web and via third-party applications. You always have the option to delete your Tweet location history. Learn more

You can add location information to your Tweets, such as your city or precise location, from the web and via third-party applications. You always have the option to delete your Tweet location history. Learn more

The first half of this year saw one of the fastest and most aggressive market corrections in history, as Covid-19 spread around the globe.  Just as unprecedented was the speed and extent of the subsequent recovery, thanks above all to governments and central banks having sent in the cavalry to boost liquidity and plug the consumer confidence gap.  Combining fiscal and monetary stimulus, the global policy response is estimated to be $14 trillion and counting.  With all this in mind, what’s next for global markets as we enter the second half of 2020 and beyond?   

The inclusion of the Bulgarian lev and the Croatian kuna in the Exchange Rate Mechanism II (ERM II), which was announced last Friday, marks a crucial step for both countries to becoming the 20th and 21st members of the euro area. Bulgaria and Croatia won’t imminently join the currency union, though. As stipulated in the Maastricht Treaty, prospective members are expected first to demonstrate at least two years of exchange rate stability—in particular no devaluation of their currencies against the euro—in the ERM II. Further convergence criteria have to be met with regards to inflation, long-term interest rates and sustainability of public finances.

Undoubtedly, a membership in the euro area would have profound consequences for Bulgaria and Croatia. But, conversely, there would also be implications for the currency union as a whole when expanding into the Balkans. I survey three of them below.

(1) Rising economic disparity

First of all, economic...

Paul Schmelzing is an academic visitor to the Bank of England, currently based at Yale University. In this guest post, he summarises his research on the differential between real interest rates and real growth rates over the past seven centuries…

There is a lively academic and policy debate about whether a build-up of excess savings in advanced economies has created a drag on long-term interest rates. In a recent paper, I provide new context to these discussions. I construct a long-run advanced economy (DM) public real interest rate series geographically covering 78% of DM GDP since the 14th century. Using this series, I argue that current interest rate trends cannot be rationalized in a “secular stagnation” framework that has been “manifest for two decades”. Rather, historical data illustrates that advanced economy real rates have steadily declined for more than five centuries, despite important reversal periods. This post draws from long-run economic history to...

The EU has embarked on a mission to make Europe the first climate neutral continent by 2050. Rather unnoticed amongst COVID-19 headlines, the EU parliament approved the unified EU Green Classification System, also known as the EU Taxonomy for Sustainable Activities, on the 18th of June and turned it into law. A core pillar of the new regulation is to outline whether an economic activity qualifies as a green investment or not, so providing a clear industry threshold for green financing transactions. While the technical working group is still defining the screening criteria for certain segments of the market, it is clear that the eligibility criteria set are stringent. Undoubtedly, this is the right thing to do if we want to achieve the challenging goal of limiting global warming to 1.5 degrees above pre-industrial levels.

The EU has embarked on a mission to make Europe the first climate neutral continent by 2050. Rather unnoticed amongst COVID-19 headlines, the EU parliament approved the unified EU Green Classification System, also known as the EU Taxonomy for Sustainable Activities, on the 18th of June and turned it into law. A core pillar of the new regulation is to outline whether an economic activity qualifies as a green investment or not, so providing a clear industry threshold for green financing transactions. While the technical working group is still defining the screening criteria for certain segments of the market, it is clear that the eligibility criteria set are stringent. Undoubtedly, this is the right thing to do if we want to achieve the challenging goal of limiting global warming to 1.5 degrees above pre-industrial levels.