Practical analysis for investment professionals
25 June 2014

Turning Points: Credit Spreads Historically Tight, Interest Rates Low

Posted In: Weekend Reads

Iraq is in chaos, Ukraine remains on the brink of all-out war, the Fed continues its taper, and China continues to struggle with its housing/mortgage complex. This period in history is shaping up to be a great test of current thinking about monetary policy. Low rates on sovereign bonds have pushed many investors farther and farther out on the risk spectrum into equities, junk bonds, and other more speculative investments — including the central banks themselves who apparently are big buyers of equities too. Credit spreads are now at all-time lows since the onset of the crisis.

Japan’s economy is showing signs of sputtering as they deal with the onset of a retail sales tax hike in 2q 2014. Europe is also teetering on the brink, with France looking like it is beginning a recession. Housing markets the world over are looking a little frothy, with significant areas of concern in Brazil, Germany, France, the United Kingdom, Canada, and Australia, among others.

Yet, all is not lost. Innovation continues to solve problems and enhance our lives. Bitcoin continues to gain remarkable momentum, and new energy breakthroughs may render renewable energy cost competitive with fossil fuels.

Here’s a wrap-up of key issues affecting global markets for fundamental investors.

Currencies

Commodities

China’s Direction

Credit Markets

Derivatives

Energy

Euro Crisis

Hedge Fund Money

Interest Rates and Central Banks

Japanese Debt and Inflation

Stock Market

Follow the Bubble

Time Capsule

  • The Fed recently released archive reports about monetary policy in Belgium just after World War II. In particular, the report focuses on how Belgium refused to let the banking system from redeem treasury securities or rediscount treasury securities with the national bank (i.e., central bank), illustrating that the interests of private banking are starkly at odds with the interests of central bankers when it comes to the amount and availability of credit.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

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