Investment planning; steepening yield curves and more.

• Steepening yield curves 
• Latest UK property statistics now available

 

 

Steepening yield curves (AF4, FA7, LP2, RO2)

US and UK central banks may have kept their official interest rates near zero, but the bond markets are pushing up longer-term rates.

Source: Investing.com

 

Source: Investing.com

The last two months of 2020 saw a strong, vaccine-inspired rally in stock markets on each side of the Atlantic, with the FTSE 100 up 16% and the S&P 500 adding nearly 15%. In contrast, the first two months of 2021 have been considerably less exciting, with the FTSE 100 virtually flat and the S&P 500 up about 1.5%.

One reason for the slowdown is that interest rates have been rising. This is not obvious if you look at the main rates of the respective central banks: the US Fed Funds rate is still fixed at 0%-0.25% while the Bank of England’s base rate remains at 0.1%. Both central bank chiefs have made clear that these rates will not be increasing any time soon. However, the bond markets are showing signs that they are not totally convinced by the pledges of Mr Powell and Mr Bailey.

That lack of conviction reflects a concern about the possibility of rising inflation. In the US, the $1.9tn ‘go big’ stimulus package is seen by some as liable to overheat an already recovering economy. In the UK an imminent jump in inflation is hard-wired in because of April price rises in utilities and Council tax.

As the two graphs show, yield curves in both the US and UK have steepened sharply – long gone are the days of negative yield curves. The benchmark 10-year rates are at one-year highs in the US and UK. That is putting pressure on equity prices, especially US technology shares. As yields rise, the discounted value of the promised future profits projected by technology companies fall.

The jump in bond yields has given investors pause for thought. It will be interesting to see whether the central banks will use quantitative easing to tame the rise in longer-term rates.

Source: Investing.com 28/2/21

 

 

Latest UK property statistics now available

(AF4, FA7, LP2, RO2)

The latest property statistics provides UK residential and non-residential transactions during the past 12 months.

The figures show the provisional seasonally and non-seasonally adjusted UK residential transactions estimate in January 2021 is 24.1% and 17.9% higher than January 2020. whereas the provisional seasonally and non-seasonally adjusted estimate of UK non-residential transactions in January 2021 is 8.2% and 14.6% lower than January 2020.

All of January 2021’s figures are lower than the December 2020 figures.

The figures also show that:

• the provisional estimates of UK non-residential transactions in January 2021 have decreased year on year and month on month compared to January 2020 and December 2020 respectively;

• UK non-residential transactions decreased by over 20% in March 2020 compared to March 2019, potentially caused by the early impact of COVID-19, with a further decrease of around 45% in April and May 2020 compared to April and May 2019;

• the provisional non-seasonally adjusted and seasonally adjusted estimates for UK residential transactions in January 2021 are the highest January transactions totals during the previous 10 years;

• the provisional seasonally adjusted and non-seasonally adjusted estimates for UK non-residential transactions in January 2021 are the lowest since January 2013.

Source: HMRC National Statistics: Monthly property transactions completed in the UK with value of £40,000 or above – dated 23 February 2021.