November 2015

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It is not an overstatement to say everyone is watching and waiting for the US Fed to make its decision to raise interest rates. The Fed chief, Janet Yellen has indicated she is personally in favour of raising rates in December and yet there are voting members of the FOMC who continue to cast doubt over such an action. However markets are increasingly confident of the first official rate rise in the US in around a decade and US bond yields have seen rises through November.

The UK appears to be in a similar a situation. GDP growth is reasonable but inflation is non-existent. The UK, like the US, took its medicine early after the GFC and, like the US, got back to growth earlier than continental Europe. However, being tied geographically and economically to Europe has its effects and bond yields fell more than French or German yields over the month. Europe, in the hands of the ECB, is struggling to generate growth and inflation. So much so, the ECB is considering another stimulus package or “quantitative easing”. European bond yield reflect this as seen in the chart of the bottom of this page.


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A table from Deutsche Bank shows exactly what QE does for bonds with a large swathe of eurozone bonds at negative yields. This is where investors are so worried about getting their money back or about deflation that they are prepared to lock in an investment loss – investors expect that this loss will be less than might be the case if deflation takes hold.