Thursday, March 22, 2012

>HEADING FOR THE GREAT REPRESSION?: Investing in a world of government-suppressed real yields


Investing in a world of government-suppressed real yields


■ Every credit investor should consider the following: Why are real yields in so many countries near historical lows despite historically poor fundamentals?


■ One key reason is that burgeoning government debt burdens are leading to ever more measures to influence market pricing.


 Financial repression takes many forms, but the primary aim is to keep real yields below market clearing levels. Some policies are already in place, many more will likely follow.


■ Central bank balance sheet expansion alone corresponds to almost half the increase in general government debt in the US, the UK and the Eurozone since 2008 (Figure 1).


 To begin with, repression seems likely to drive more money into risky assets like credit.


■ Longer term, however, history suggests the distortions and even bigger imbalances need to correct with a very negative impact on credit spreads.


■ Even during the benign period, volatility and uncertainty are likely to be far higher than investors have grown used to, thanks to abrupt and far-reaching changes in policy.



To read full report: GREAT REPRESSION
RISH TRADER

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