/ 6 Jul 2020
Divergence of Pandemic and Credit Markets. Returns in risky markets such as CCC bonds and S&P500 have been anticipating COVID cases in the US for most of this year, displaying a clear negative relationship (i.e. higher returns ahead of falling COVID cases). These risky markets correctly rebounded in late March, anticipating a decline in COVID cases during April and May. Returns in CCC bonds and S&P 500 priced in a resurgence in COVID cases in early June, which effectively took place a week or so later.
/ 30 Jun 2020
Lost in the Post ... Looking at the latest US Labour Market data, one could easily be forgiven for thinking that someone neglected to tell the workers of America that the economy had, after a brief interlude, got back to normal extraordinarily quickly following the disruption of the Covid-19 shutdown. The US benefits system is both complicated, variable across States, and arcane, but the following table shows just how many Americans were receiving Government benefits (or in the processing pipeline for benefits) in mid-June.
/ 23 Jun 2020
Is it time to buy Real Estate in the US? Make no mistake about it: many Real Estate assets in the US are about to see some value destruction. Some of the drivers of real estate returns have been significantly impacted, leading to dismal expected returns. In our models, we found that GDP growth, yield curve steepness and treasury yields are significant predictors of real estate futures returns, and all three are at depressed levels. Furthermore, the retail tsunami that swept almost 10,000 retailers in 2019 will only grow from here, increasing vacancy across the country.
/ 15 Jun 2020
Will there be another repo crunch at the end of June? There has always been some measure of a race for cash at the end of every quarter in US money markets as many institutional investors settle their balance sheets ahead of key performance and regulatory metrics. However, rapidly growing US Treasury cash balances at the Fed (so called Treasury General Account or TGA) this year have raised the prospect of another sizable repo stress episode. The US$1.1 trillion increase in TGA balances (work as the government’s checking account at the Fed) has directly affected the Fed’s balance sheet by draining bank reserves. If left unchanged, 2 the record TGA balance could create a sharp shortage of cash for many institutional players at the end of this quarter, potentially triggering a repo stress episode similar to December 2018 or September 2019.