There are enough studies on the term structure to pave the way, as they often say, “from here to the moon.” And that would be limited to central bank studies. Private studies would take us right out of the solar system (along with Voyager I).
We have specialized past years in term-structure strategy, the US and UK. Results have been satisfactory. We don’t examine the yield curve with scholastic rigor so much as common sense. But central banks, including Carney’s Bank of England rely on the “expectations model” of the term structure. This forms, as John Taylor explains, the theoretical underpinning of so-called forward guidance. It’s a weak theory, explaining why for example Carney at this very moment is perplexed at the long end’s reaction to his preaching.
Perceived central bank generosity in the face of 1) surprising economic vigor and, 2) elevated price reads means corrosion in long-end debt prices. That’s the situation in the UK after Carney’s maiden speech today.
Robert Craven
We have specialized past years in term-structure strategy, the US and UK. Results have been satisfactory. We don’t examine the yield curve with scholastic rigor so much as common sense. But central banks, including Carney’s Bank of England rely on the “expectations model” of the term structure. This forms, as John Taylor explains, the theoretical underpinning of so-called forward guidance. It’s a weak theory, explaining why for example Carney at this very moment is perplexed at the long end’s reaction to his preaching.
Perceived central bank generosity in the face of 1) surprising economic vigor and, 2) elevated price reads means corrosion in long-end debt prices. That’s the situation in the UK after Carney’s maiden speech today.
Robert Craven
No comments:
Post a Comment