Entries tagged with “monetary-policy”
Articles
3 articles found for monetary-policy:
- Disinflation – The How and Why of it
In economics, fluctuations in inflation rates can significantly influence the financial landscape of businesses. While inflation tends to erode purchasing power, disinflation – a slowdown in the rate of price increases – presents a different set of challenges, particularly for companies seeking financing. As disinflation alters market dynamics, it can have positive and negative repercussions for businesses. Understanding these implications is crucial for navigating the intricacies of corporate finance and strategizing for sustainable growth.
- Are Risk-Free Bonds Really “Risk-free”?: The Case of Silicon Valley Bank
Silicon Valley Bank (SVB), one of the leading banks in the US and regarded as the banker for startups, was shut down on March 10, 2023, by regulators due to its heavy investment in bonds and agency-backed securities. SVB’s bonds fell when the Federal Reserve increased its interest rates, thus creating chaos. Can SVB be saved and regain its former glory? Are risk-free bonds really “risk-free”?
- Shifting Tides: The Silent Rise of De-Dollarization
The US dollar has been the world's dominant reserve currency for decades, with countries around the globe holding large amounts of it to facilitate international trade and investments. However, the trend toward de-dollarization has been growing recently, as countries seek to curtail their dependence on the US dollar and diversify their reserve holdings. Will the dollar be replaced as the global currency?
Special Reports
4 special reports found for monetary-policy:
- High Yield - Europe Spotlight
European HY bond market returns declined in YTD 2022, owing to heightened geopolitical tensions and rising interest rate risks. Issuers largely stayed on the sidelines in 2022 due to higher refinancing costs. Despite recession fears, the 10-year–2-year European spread steepened in 2022, in contrast to the US curve inversion. That said, the Eurozone recession is likely to stem from energy supply concerns owing to the Russia-Ukraine crisis and not from ECB tightening its monetary policy. Notably, S&P expects the European high yield corporate default rate to rise to 3.0% by March 2023 from 0.7% as of March 2022.
- Unwinding the Policy - Japan’s Yield Curve Control
The Bank of Japan (BoJ) has been using the yield curve control (YCC) as a monetary policy tool since September 2016 to maintain stability in the Japanese government bond market and achieve a consistent inflation rate of 2%. However, following the announcement of the October policy allowing the reference rate to rise to 1%, speculation has intensified, resulting in increased volatility in Japanese government bonds. This has led to discussions within BoJ about further potential YCC adjustments, as the bank could allow bond yields to cross 1% but at a monitored pace. This has triggered speculation about the potential end of YCC, which could lead to disruptions in sovereign bond yields, affect the Yen’s strength, and impact the performance of Japanese equity indexes.
- Saudi Banking Sector: Unlocking Vision 2030 Opportunities
Saudi Arabia's economic prospects remain robust, driven by the non-oil sector in alignment with the Vision 2030 initiatives. The Saudi banking sector is expected to play a pivotal role in achieving the Vision 2030 objectives. This sector displays resilience, characterized by a healthy outlook supported by factors such as a promising pipeline for future loan growth, substantial liquidity, sound asset quality, and strong capitalization. Saudi banks are well-positioned to weather upcoming interest rate volatilities when the US Fed starts cutting interest rates. We believe that during this significant monetary policy shift, the top three banks in KSA are ready to capitalize on their dominant market share in loans and deposits for future opportunities. Among these, SNB is poised to reap significant benefits, given its leading market position in loans and deposits, a well-balanced loan mix, and a robust domestic franchise.
- High Yield – US Spotlight
After recording a plunge in the US high yield bond returns in 2022, the Federal Reserve’s aggressive monetary policy stance to tame inflation proved crucial in driving asset prices in 2023. The possibility of a soft-landing, where the US Fed could afford to slowdown economy and avoid a recession, has favored higher-beta fixed income assets such as the US speculative grade corporate bonds. We observed this in 9M’23, where the US high yield corporate bond Index generated returns at ~6% whereas the US Investment Grade Bond Index remained flat. Barring Equity and Energy, the US high yield corporate bonds outperformed other asset classes like the US treasuries, gold, and metals. As recessionary fears subsided, spreads across all rating categories of the US high yield bonds (i.e., BB, B, CCC and lower) have tightened. However, due to higher borrowing costs, the number of High Yield Corporate Bond issuances remains below the five-year average. Notably, consumer discretionary and healthcare sectors remain challenged by multiple headwinds, such as muted consumer demand, pricing pressures, high labor costs, and rising input costs. The impact is witnessed from the fact that a major chunk of bankruptcy protection filings has been in these sectors. Overall, bankruptcies in YTD Aug’23 have surpassed 2021 and 2022 levels. We still see value in the real estate, materials, and utilities sector, which recorded relatively lower bankruptcies in 2023.