As a former Market Maker/Primary Dealer in UK Gilts (1987-1993), it took me a long time in the UAE to adjust to startimg my Trading day and my daily routine without a yield curve. I felt somehow naked, unprepared and missing the "fountain of knowledge" that could be gleaned from a Curve.
Like many other things, I do it only periodically these days, now, thankfully, without attributing any naieve "fundamental economic" interpretation for the justification of changes in any particular Curve.
A distant memory now are the days of the UK Chancellor/HM Treasury/ GBrown selling off the Gold reserves at the bottom of the market because the Curve told him inflation was "dead ". Imagine the mark to market opportunity cost of that one, > £4 Bn methinks and yet he still became UK Prime Minister!!
A distant memory are the days of 5yr UK Gilts with coupons like 14% 1996, "Winnies" 13 1/2%1992 or "E aw's" 13 1/2% 1994. They are long gone* (apologies to all you non-Gilt people), or the Un-dated "War Loan" famous for being the only UK Gilt where the Price and GRY yield crossed eachother! That couldn't happen in an efficient market, surely?
The thought of 10yr Bunds possibly ever ever yielding less than 2% would have certainly brought the men in white coats running...... even from the Bundesbank.
I choose instead, nowadays, to pay a mindful and yet respectful eye at each "Yield Curve" but view them with a colder "Systematic" eye rather than rushing to attribute any fragmented Macro economic view of what is or has been happening in the worThey say an Economist will "always be right", eventually. Now I say "Show me the evidence!"
Forget Roger Bootle, Jim O'Neill et al. One might as well exhalt the prophetic lyrics of the 1980 classic Vapors song "Turning Japanese" but somehow, I dont think they were talking about interest rates or were they?...........
Or what about Jean Jacques Burnel, bass guitarist from the fantastically talented "The Stranglers"? His 1979 debut solo album was insightfully entitled "Euroman Cometh". Curious too, that Track 4 was prophetically entitled "EuroMess"! Strange that he was French not Geek then. Must be the No1 favourite disc in Pierre Bergovoy's collection.
So, eat your heart out Nostradamus ! ...................or was that Nosferatu? ..........................er sorry No, that was in fact Hugh Cornwell's debut solo album, lead guitarist of ???????? Yes.........you guessed it "The Stranglers"! Apologies I digress but, anyway, you get my point.
As the market de-leverages from the Credit Crisis, the free money "carry trades" that were so in vogue in the 80's and 90's in the high interest rate environment are almost a relative thing of the past. People have seemingly forgotten the Yield Curves.......... after all, they ARE boring now aren't they?
Perhaps a new generation of first time property buyers in this low interest rate environment who, when they find their mortgage payments doubling and try to lock in a competitive fixed rate (which wont be there), may prove the justification for another further negative property bubble ?
Better sages than I will explain (no doubt after the fact !).
So then, for an accurate answer, why not quiz Jet Black, the Strangler's drummer or perhaps even Robert Prechter of Elliot Wave fame, who by co-incidence, is also a drummer? Scary isnt it?
Every month, therefore, I too intend to put down my drumsticks and publish a qick snapshot of the USA, EUR and UK government bond Yield Curves, in future to be known as the "Keith Moon" Yield Curves and illicit a short analysis of how each segment has changed over time eg: 2yr-5yr; 2yr-10yr, 2yr-30yr etc. I will not be so foolhardy and rash to explain "Why" they have moved, only that they have, and by how much.
Whooooooo are you? Who who, Who who? I really wanna know.
Thanks Keith
Interpret as you will and hopefully enjoy!
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