Quantitative easing and “VaR shocks”

Securities held by VaR (Value-at-Risk)-sensitive institutional investors, such as banks, are prone to escalatory selling pressure after an initial shock, in particular if they...

The dangers of ultra-low interest rates in Europe

Negative nominal interest rates and term premia are an issue for financial stability in Europe, according to a recent speech by the Deputy General...

Why money markets remain vulnerable

New theoretical work shows that money markets remain fragile as long as there is a connection between asset prices, secured funding and unsecured funding. The degree...

Risks related to the Fed’s exit from ultra-easy policy

The IMF Article IV consultations for the U.S. suggest that a Federal Reserve exit from unconventional and highly accommodative policy may be challenging. Most...

Bank of Japan policy and long-term bond yields

A speech by Bank of Japan’s Takehiro Sato underscores that stabilizing long-term JGB yields has become a particular focus in the context of “Qualitative...

Term premia in the times of “lift-off”

Equilibrium models suggest that as long as the policy rate is firmly near zero, the term premium on longer-dated yields is compressed by a...

Setback risks for international USD lending

The BIS annual report emphasizes the dollar’s pervasive influence on international financial conditions. Post-crisis non-conventional Fed easing has spurred a global credit expansion, including...

Bank of Japan’s new mandate to overcome inflation

Bank of Japan Governor Shirakawa emphasized his instutions strengthened mandate to end deflation. The key decisions were the introduction of a 2% inflation target...

The duration extraction effect

Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The purchase of assets changes the structure of prices. A...

Consequences of euro area break-up fears

A very interesting Banca d’Italia study shows how euro area break-up expectations are becoming self-reinforcing, i.e. precipitating a divergence of sovereign yields and financial conditions beyond...

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Identifying the drivers of the commodity market

Commodity futures returns are correlated across many different raw materials and products. Research has identified various types of factors behind this commonality: macroeconomic...

Macro factors of the risk-parity trade

Risk-parity positioning in equity and (fixed income) duration has been a popular and successful investment strategy in past decades. However, part of that success...

Identifying market regimes via asset class correlations

A recent paper suggests identifying financial market regimes through the correlations of asset class returns. The basic idea is to calculate correlation matrixes for...

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