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1994, this is not

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US 10-year bond yields soared to the dizzying height of a little over 2.5% yesterday, causing widespread panic in the financial media. Those of us who remember the early 1990s are perhaps a little less impressed.
  • The media stories are a reminder that bond markets are subject to the influence of "captive" investors – investors who buy bonds because they have to, not because they want to. The role of the yield curve as a lead economic indicator is also challenged. The yield curve steepened yesterday, but no one can claim economic expectations improved significantly in the past 24 hours.
  • US producer price inflation is due, and should show continued improvements in corporate pricing power. The core trend has been rising over the past two years. The UK is due to publish the Bank of England's credit conditions survey – the UK consumer having proved resilient (once again) into the end of 2017.
  • China announced a crackdown on the mass production of cryptocurrencies, on the reasonable grounds that the electricity required could be more productively employed than in stoking a speculative bubble. China needs to allocate electricity carefully – its water shortages being a constraint on electricity generation, a form of environmental credit crunch.