Bond Outlook [by bridport & cie, April 15th 2009]
| If it is true that stock markets rally six months ahead of an economic recovery , then recent rises certainly reflect our hope that GDP will at least stop falling sometime in the autumn of this year. However, we could just as easily be experiencing a bear market rally, as the alleged "green shoots of recovery" look very fragile. The recent rise in commodity prices, another leading indicator, suggests the adoption of a more cautious approach, as historically, a commodities rally has preceded the bottom of a bear market in stocks by a few months (rather than the bottom of economic activity as such) |
| In one area, however, we can be optimistic almost without proviso: the functioning of the financial markets. Libor rates are declining as banks find the confidence to lend to each other. The trading desk at our company is finding it less difficult to find counterparties , and yield spreads have come in almost everywhere (although bid/ask spreads are still abnormally high). CDS rates on bank bonds are declining, and many banks (unfortunately not UBS!) are announcing profits. |