Effects of Quantitive Easing on......

This is a discussion on Effects of Quantitive Easing on...... within the Economic & Fundamental Analysis forums, part of the Methods category; ........corporarte bonds. Any idea? I understand that if the government goes down this route it effectively "transfers assetts" by "buying ...

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Old Feb 11, 2009, 2:17pm   #1
 
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Effects of Quantitive Easing on......

........corporarte bonds.

Any idea?

I understand that if the government goes down this route it effectively "transfers assetts" by "buying up debt".

Does anyone have any insight, or know where to look, for information on how QE would effect corporate bond prices? My take in that it would be positive for bond prices, am I correct?

Cheers,
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Old Feb 11, 2009, 2:31pm   #2
 
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Not necessarily. The main impact from a fixed income perspective is on government treasuries, but corp bond prices could fall (ie yields rise) if the fear is that QE unleashes inflation.
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Old Feb 11, 2009, 3:02pm   #3
 
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Originally Posted by Jack o'Clubs View Post
Not necessarily. The main impact from a fixed income perspective is on government treasuries, but corp bond prices could fall (ie yields rise) if the fear is that QE unleashes inflation.
thanks for that JOC.

Wouldn't that have the effect of pushing down yields on government bonds still further? There's now a huge gap between government and corporate yields, no doubt reflecting the default risk. At some point, and if the effect of any stimulus is to brighten the outlook for UK PLC, can't we expect the default risk to fall (and prices rise) in advance of any threat of inflation?

I hope the above doesn't make it sound like I know what I'm talking about, because I don't

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Old Feb 11, 2009, 5:09pm   #4
 
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Difficult to say as its hard to disaggregate what the prices are currently discounting - I don't think anyone knows to be honest. On government debt, a lot will depend on whether the US starts buying treasuries as they've hinted they might. I do think corporate bonds are very cheap at the moment - I've been buying some through bond funds.
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Old Feb 11, 2009, 6:04pm   #5
 
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I do think corporate bonds are very cheap at the moment - I've been buying some through bond funds.
me too. Which ones, if you don't mind me asking?

I'm building up holdings in;

Fidelity Moneybuilder
Invesco corporate bond
M&G Optimal income
Investec Sterling Bond
Templeton strategic bond
Baring directional global bond

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Old Feb 11, 2009, 6:33pm   #6
 
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Your Invesco one, plus Aegon Investment Grade Bond and Baillie Gifford Investment Grade Bond
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Old Feb 11, 2009, 6:36pm   #7
 
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Your Invesco one, plus Aegon Investment Grade Bond and Baillie Gifford Investment Grade Bond
LOL -I'm also holding the Aegon fund, and I forgot!

Another question - do you know if any of your funds hedge against currency movements? It seems most of the funds have a max of around 65% UK exposure. Do they hedge the foreign stuff? (not talking about the strategic stuff where they're trying to profit from currency movements)

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Last edited by the blades; Feb 11, 2009 at 6:42pm.
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Old Feb 11, 2009, 8:13pm   #8
 
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The Aegon fund 'hedges back to sterling a minimum 80% of the fund', so I guess that gives them flexibility to take a small currency bet if they wish to.

The Baillie Gifford fund is sterling only, and Invesco hedge out all forex exposure.
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Old Feb 11, 2009, 8:15pm   #9
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1st question is government doing this for profit or the opposite?
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Old Feb 15, 2009, 11:20pm   #10
 
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Quantitative easing

I have run across a book "Credit Crunch" by Graham Turner (2007).
He worked in Japanese banking industry for abut 20 years. Japanese quantitative easing started in late 1990s, with the effects described in the book.
Can`t remeber the impact on corp bonds prices or yield, but i suggest to take an insight into Japanese bond prices indexes after japanese gov intervened.

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Old Mar 10, 2009, 6:22pm   #11
 
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Stephen King sums up the uncertainty nicely here:
Stephen King: The policy to print money is right but we must be told how it works - Stephen King, Business Comment - The Independent
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Old Mar 10, 2009, 8:21pm   #12
 
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1st question is government doing this for profit or the opposite?
I read last week that they expect to lose about £150m from the £75bn input.
If you do the numbers this suggests that they will stay in until the gilts expire, i.e. the dividends will pay back most of the investment.
Not sure how inflation (or deflation) figures in that though. Perhaps they aren't either !
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Old Mar 12, 2009, 1:05pm   #13
 
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This is nothing more than pure CREDIT EXPANSION. The benefit is 0. In the longterm there will be another crash and another wave of credit to help pay for the ridiculous debt levels that we have. This debt needs serviced.

If you are already in debt how can you service it? Print more money in the ST?

Do we not need to rethink the fundamentals underlying our greed?
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Old Mar 12, 2009, 1:50pm   #14
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It's an expansion, but credit has massively contracted.

I heard rumours they may buy up corporate bonds, which would be good for them.

As to the infaltion question - I saw two economists completely divided and arguing with each other on that. It seems pretty clear to me that no one can say since no one knows who much money will be written off, and how much QE will take place.

I would say that IMO the hole created by the crunch/recession is already, and will turn out to be even bigger than all the mooted QE. I imagine they'll carry on QE-ing until they get some sort of effects. Unfortunately I don't see much clever lending being done in this climate. I think people still underestimate the scale, and inflation is a long way off.
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Old Mar 12, 2009, 1:54pm   #15
 
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They have, in fact, promised up to £50bn of corp bond purchases...
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