Saturday, August 26, 2006

Fixed income markets across the world are showing definite signs of recovery; but face debilitating rate hikes


IIPM BEST B-SCHOOL
Yield curves... oh, those mischievous nymphets; playful, attractive, legendary, but most importantly, creatures beyond the grasp of mere mortals. Seriously speaking, many of us still have not been able to figure out the complicated vagaries of yield curves. Take the US treasury yield curve for example. Every possible position of the yield curve has been puzzled over in the recent past and many perturbing inferences drawn, with half of them thumping for the end of the world, and the remaining staunchly upholding the glory of global growth. Well, for the moment, all the curvature analysis and geometry portends that the happy days of debt are definitely back.

Yields on US treasuries have started to fall-off after a period of some serious escalation (see figure). And it seems these will only get better as indications from the Federal Reserve, as well as a lower than expected Q2 GDP, point towards an end to the rampant rate hike era. As Kim Rupert, Managing Director, Global Fixed Income Analysis, for the firm Action Economics, explains, “It looks like debt is already ‘back’...


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Source : IIPM Editorial, 2006, Editor - Prof. Arindam Chaudhuri

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