The dangers of US index-linked bonds

Article Abstract:

The US government plans to issue index-linked bonds and this could affect financial markets world wide in a number of ways. Indexed bonds are seen as a measure of inflation expectations through the yield spread compared to conventional bonds. The US Federal Reserve may take the yield spread into account when setting interest rates. Yields for indexed bonds may be volatile at first, especially because the market will be small. Indexed bonds will not initially be a good guide to whether equities are overvalued until the relationship between the two has been clarified.

Indexation (Economics), Inflation-indexed bonds, Inflation indexed bonds

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A bear market

Article Abstract:

Paribas Capital Markets foresees a possible bear market for bonds world wide in 1997. Economic recovery is likely to continue and this will lead to concern about inflation and a view that monetary policy is likely to be tightened. Those markets with high yields like Spain and Italy are especially likely to be hit since there may be a reassessment of the chances of success for planned European monetary union. Such a reassessment could lead to yield divergence in the European bond market, even though monetary union is likely to proceed according to schedule.

Western Europe

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The spectre at the US feast

Article Abstract:

US bond yields could rise if overseas investors cease to buy bonds. US investors have been sellers of bonds for the first nine months of 1996. Foreign investors have backed the bond market, and central banks have been especially important as purchasers. This could end if the US dollar rises and central banks no longer need to intervene. Central banks may also see a further rise in the value of the dollar as undesirable and this could also mean less central bank intervention.

Economic policy, Central banks

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