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Cowley: QE is not working - gilts are effectively worthless
by Stewart Cowley on Feb 08, 2012 at 00:01
Politically a corporate bond QE program would be a winner as it would help stimulate the rise of the private sector which would, in turn, begin to absorb the jobs lost in the public sector, as has been promised by the Conservative/Liberal Coalition government.
The flip side to this prospect is that any hint that this is about to occur would be bad for gilts – yields would rise from the current artificially depressed levels.
But with corporate bond yields still at elevated levels a corporate bond/loan QE program would carry with it a possible by-product; that the Bank could actually make a profit from the next phase of QE.
Having transferred a huge amount duration risk into our central bank the next phase could well be the biggest transfer of credit risk out of the hands of the private sector and into the state that this country has ever seen. So if any of you thought there was light at the end of the QE policy tunnel think again. It’s not a light, it’s the next train coming…
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Aberdeen Live supplement: Fundamentals point to ongoing flows and solid returns from EMD
After a record year for inflows and market-leading performance in 2012, emerging market debt has taken a large step towards the mainstream. Our recent debate covers the outlook for the asset class this year and where opportunities can be found.
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