Pegasus Capital

With the UK in recession, the continued threat from the Euro region and the USA still sluggish, it is no surprise that interest rate rise expectations have all but disappeared in the near term.

Both LIBOR rates (out to 1 year) and Fixed Term rates (longer than 1 year) were lower. A comparison of the implied forward curve for SONIA (the closest market benchmark to the UK Base Rate) shows that the markets view for possibility of a cut in the Base Rate by another 25bp has increased in the near-term and that Base Rates over 1% will come in mid 2016 rather than the end of 2015 predicted at the end of last month.

UK Government Bond yields tightened in as the Bank Of England continued it’s Quantitative Easing programme and International Investors continued buying UK Gilts in preference to Euro Sovereign Debt. The 10 year UK Gilt Benchmark closed at a yield of 1.4850% (1.7340%) and the 30 year UK Gilt Benchmark closed at a yield of 2.8860% (3.0380%).

In the Foreign Exchange Market GBP was pretty much unchanged against the USD$ at 1.5650 (1.5707) , but stronger against the EURO at 1.2740 (1.2401)

In the credit markets the UK Banks performance was varied, with RBS, Lloyds, Nationwide and Santander UK credit spreads (risk) all tighter (less), but Barclays and HSBC both slightly wider (increased risk).

PegasusCapital - 01/08/2012

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A View From The Bridge - May 2020 (2)

The risks of a deflationary outcome remain very elevated. Our understanding of likely household responses is becoming more informed, particularly with regard to genuine uncertainty, precautionary savings balances being built (where possible) and the likely consolidation of credit related debt. Turning the tide on the risk of viral infection and saving lives is the driving policy of government, but by definition this just pushes another rising tide of shrinking demand onto the economy.

PegasusCapital - 07/05/2020