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Bonds Crash : Myth or Reality ?
Nicolas Forest, Head of Interest Rate StrategyKoen Van de Maele, CFA, Global Head of Fixed Income
October 2009 - Brussels
Bonds Crash : Myth or Reality ?
Nicolas Forest, Head of Interest Rate StrategyKoen Van de Maele, CFA, Global Head of Fixed Income
October 2009 - Brussels
3Source : Bloomberg & Dexia Asset Management Interest Rate Research
Agenda
I. The Usual Suspects
II. Can we really trust Central Banks ?
III. Can we really trust Governments ?
IV. Can we really trust Bonds Market ?Government bond marketCorporate bond market
4Source : Bloomberg & Dexia Asset Management Interest Rate Research
Bonds Crash
The Usual SuspectsThe “Money Printers” and “Inglorious Spenders”…
5Source : Bloomberg & Dexia Asset Management Interest Rate Research
The Usual Suspects
“Central banks around the globe are printing money, lowering interest rates, and altogether loosening up monetary policy—all of which will lead to inflation and high commodity (i.e., gold) costs.”Epoch Times, 15 September 2009
“At some point, the Fed will need to drain this cash out of the financial system as it raises interest rates. If it doesn't act soon enough, it could risk letting inflation rise above desired levels.” The Wall Street Journal, 17 September 2009
“The U.S. Congressional Budget Office is pegging the federal budget deficit for 2009 at US$1.6-trillion "I would not be surprised that at some point after 2011 that yields rise as high as 6% to 7%." says Mr. Zandi chief economist of Moody's. This rise in yields would equate to significant capital losses for bondholders.” Financial Post, 22 September 2009
« L'ensemble de la dette américaine (État, entreprises, ménages) est de 400 % du PIB, proche des niveaux de 1929», prévient Michaël Benhaïm, responsable de la gestion obligataire chez Pictet. Faut-il craindre un krach obligataire ? « On ne peut pas écarter ce scénario lors de la sortie de crise»Moneyweek, 25 June 2009
“Ben Bernanke said this week that the recession is "very likely over." Yes, the recession may be over in nominal terms, but massive inflation has just begun and prices of stocks and real estate will continue to plummet when valued in real money, gold and silver. And it may still be too late to prevent hyperinflation”National Inflation Association, September 2009
“L'ombre du krach obligataire de 1994 plane ànouveau sur les marchés” La Tribune, 15 September 2009
…could cause a Bond Crash ?
6Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Central Banks ?
Evolution of Central Bank Supply
-
500 000
1 000 000
1 500 000
2 000 000
2 500 000
2002 2003 2004 2005 2006 2007 2008
The quantity of reserves in the banking system has risen dramatically…
+ 1 162 billions of us dollars in 1 year
i.e. 9% of the GDP
* The Fed has the ability to purchase assets or offer loans withmoney created by itself : it prints money
* Composition of the Supply(millions of us dollars)
-
500 000
1 000 000
1 500 000
2 000 000
2 500 000
2002 2003 2004 2005 2006 2007 2008
Central Bank Liquidity Sw apsPortfolio Holding of Commercial Paper Funding FacilityOther loans Term auction creditSecurities Held Outright
The massive asset purchases & the liquidity facilities explain the increase of the supply offered by the Federal Reserve
7Source : Bloomberg & Dexia Asset Management Interest Rate Research
These facilities have unfreezed the credit markets…Can we really trust Central Banks ?
Ted Spread & CP Fund Facility
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2002 2003 2004 2005 2006 2007 20080
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
Ted SpreadPortfolio Holding of Commercial Paper Funding Facility
Credit Spread & Term Auction Credit
-
50
100
150
200
250
300
2003 2004 2005 2006 2007 20080
100 000
200 000
300 000
400 000
500 000
600 000
Credit Spread Term auction credit
The commercial paper facilities aim to unfreeze the money markets and
reduce the Ted Spread…
The Federal reserve wanted to decrease the
risk premium & normalize the credit spreads…
8Source : Bloomberg & Dexia Asset Management Interest Rate Research
Supply absorbed by depository institutions
-
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2002 2003 2004 2005 2006 2007 2008
Currency in circulation Deposits w ith Banks Other
… and have created a large quantity of excess reserves…
Supply non absorbed by depository institutions
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
1 000 000
2002 2003 2004 2005 2006 2007 2008
The supply non absorbed by depository institutions are excess
reserves
Can we really trust Central Banks ?
9Source : Bloomberg & Dexia Asset Management Interest Rate Research
Components of the Monetary Base
-
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2 000 000
2002 2003 2004 2005 2006 2007 2008
Currency in circulation Reserve balances w ith Federal Reserve Banks
… which banks don’t transmit into the economy
The Money Multipliers
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2002 2003 2004 2005 2006 2007 20083
4
5
6
7
8
9
10
Money Multiplier M1 Money Multiplier M2
The excess reserves are not transmitted to the monetary mass : money multipliers have collapsed !There is no inflationary risk in the short term
The increase of monetary base is explained by the excess reserves
Can we really trust Central Banks ?
10Source : Bloomberg & Dexia Asset Management Interest Rate Research
13%8%Annual M2 Growth
9.004.75Money Multiplier
15 6888 283M2 (billion of $)
1 7431 743Monetary Base (billion of $)
833833Excess Reserves (billion of $)
SimulationCurrent
Should the excess reserves be converted into new loans, money would grow faster…
Annual Growth of M2
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14
The amount of excess reserves doesn’t change…
… but the multiplier normalizes…M2 increases to 7 405 billions of dollarsThe excess reserves are used in the real economy
… and annual M2 growth increase significantlyWe assume a shift on 5 yearsThe average is close to 13%
Can we really trust Central Banks ?
Simulation
11Source : Bloomberg & Dexia Asset Management Interest Rate Research
US Money Growth & Inflation
2000
1990
1980
1970
19601950
1940
1930
1920
1910
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Annual Growth of M2
Infla
tion
… and cause severe inflation
US M oney Growth & Inflation
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 01 06
M2 CPI
In the long term, money growth and inflation are correlated…
Can we really trust Central Banks ?
12Source : Bloomberg & Dexia Asset Management Interest Rate Research
The German example in the 1920sCan we really trust Central Banks ?
Annual Growth of Monetary Mass in Germany(in percentage)
0%
200%
400%
600%
800%
1000%
1200%
1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922
Currency in circulation
Monetary Base
The currency in circulation has been
multiplied by 215between 1910 & 1922
Wholesale Price Index
-
100 000 000 000
200 000 000 000
300 000 000 000
400 000 000 000
500 000 000 000
600 000 000 000
700 000 000 000
800 000 000 000
1914 1919 1921 1922 1923 1923
Wholesale Price Index
13Source : Bloomberg & Dexia Asset Management Interest Rate Research
But the Federal Reserve could reduce the excess reserves…
The Fed can reduce the size of excess reserves…By selling securities
Bill, Notes and BondsFederal agency debt securities & mortgage-backed securities
By reducing the credit facilitiesTerm auction creditOther Programs (ABCP Liquidity Facility, Term Asset-Backed Securities Loan Facility…)
… but that could impact market stabilitySelling Securities
risk on interest ratesrisk on credit spreads
Reducing the credit facilityRisk on inter banking market
Can we really trust Central Banks ?
14Source : Bloomberg & Dexia Asset Management Interest Rate Research
…or raise its interest rate to discourage the lending opportunities
Since October 2008, the Fed remunerates the excess reserves
An increase of interest rates will reduce the transmission from excess reserves to the real economy
The Fed can keep its securities and support the bond market
The Fed will reduce the inflation expectations
The beginning of the tightening cycle can favor the flattening of the curve
Can we really trust Central Banks ?
Evolution Central Bank Rate
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Sep-08 Dec-08 Mar-09 Jun-09FF LIBOR 3M OIS 3M
Why does the Federal Reserve want to pay interest on excess balances?“Paying interest on excess balances should help to establish a lower bound on the federal funds rate by lessening the incentive for institutions to trade balances in the market at rates much below the rate paid on excess balances. Paying interest on excess balances will permit the Federal Reserve to provide sufficient liquidity to support financial stability while implementing the monetary policy that is appropriate in light of the System's macroeconomic objectives of maximum employment and price stability”Board of Governors of the Federal Reserve System.
15Source : Bloomberg & Dexia Asset Management Interest Rate Research
New-Zealand - Components of Monetary Base
-
5 000
10 000
15 000
20 000
25 000
30 000
35 000
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Currency in Circulation Excess Reserves
Excess reserves are not always inflationary
New-Zealand - Inflation & Monetary Mass
-1%
0%
1%
2%
3%
4%
5%
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Annual Grow th of M2 [R.H.S] CPI
The Reserve bank of New Zeeland has used the same framework since
2006…and the excess reserves have been
multiplied X 2
Despite the increase of excess reserves,
inflation has decreased since 2006
Can we really trust Central Banks ?
Sweden’s Riksbank pays banks a negative interest rate of minus 25 basis points for dumping excess reserves in its deposit facility. The idea is to give them an incentive to lend excess reserves to the real economy.
16Source : Bloomberg & Dexia Asset Management Interest Rate Research
Yes, we can
The massive excess reserves have saved the banking system…Normalization of money marketsReduction of risk premiums
…and can be controlled by a specific frameworkIncrease of interest ratesWithout removing the excess reserves from the banking system
The quantitative easing permits to regulate the economy…Stabilization of mortgage ratesStabilization of bonds market
…if central banks keep their credibilityPerfect economic consensus to avoid the deflation riskUnusual coordination of monetary policy
Can we really trust Central Banks ?
17Source : Bloomberg & Dexia Asset Management Interest Rate Research
Fed Fund Target & Logit Model
-2
0
2
4
6
8
10
87 90 93 96 99 02 05 08ACT FIT +3
We expect the end of the Zero Interest Policy in 2010
ECB Target Rate & Logit Model
0
1
2
3
4
5
6
96 99 02 05 08ACT FIT T+3
Can we really trust Central Banks ?
The Taylor rules suggest possibility
of hikes…if the employment market
improves
Central Bank can raise interest rate without removing liquidity…a useful tool in the case of
rebound of the economy
18Source : Bloomberg & Dexia Asset Management Interest Rate Research
The global public debt increases…Can we really trust Governments ?
1999
Source : The economist
19Source : Bloomberg & Dexia Asset Management Interest Rate Research
…more and moreCan we really trust Governments ?
2011
Source : The economist
20Source : Bloomberg & Dexia Asset Management Interest Rate Research
…more and moreCan we really trust Governments ?
European Budget Deficit
-10%
-8%
-6%
-4%
-2%
0%
2%1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Belgium France Germany
Source : The economist
Government Debt (as a percentage of the global public debt)
0%
5%
10%
15%
20%
25%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Belgium France Germany US
21Source : Bloomberg & Dexia Asset Management Interest Rate Research
But the relation between public debt and government yield is not very stable...Can we really trust Governments ?
The impact of rising government debt on bond yields is unclearThe sign of the relation between debt and yield can be negative
The Fed estimates the possible impact of government debtFor 1% of Debt / Gdp, interest rates can increase between 3 and 4 basis pointsFor a change of 35% of the Debt / Gdp, the bonds yield could increase to 1.25%
1950-1970
y = -0.7643x + 0.1162R2 = 0.7586
0%
1%
2%
3%
4%
5%
6%
7%
8%
6% 8% 10% 12% 14%Debt/Gdp
Yiel
d Le
vel
1970-1985
y = 0.4552x + 0.0293R2 = 0.6817
0%
2%
4%
6%
8%
10%
12%
14%
16%
6% 11% 16% 21% 26% 31%Debt/Gdp
Yiel
d Le
vel
1985-2009
y = -0.1105x + 0.1226R2 = 0.7521
0%
2%
4%
6%
8%
10%
12%
14%
0% 20% 40% 60% 80% 100%Debt/Gdp
Yiel
d Le
vel
22Source : Bloomberg & Dexia Asset Management Interest Rate Research
The demand for government debt changes… (Central Banks Demand)Can we really trust Governments ?
Initial Situation
If a central bank buys treasury bondsIt increases the bank reservesAnd impacts the government bond prices
The Fed held 740 billions of treasuries7% of the total public debt
The announcement of purchases has significant impact on government yield
US Treasuries Held by the FED(milions of USD)
400 000
450 000
500 000
550 000
600 000
650 000
700 000
750 000
800 000
850 000
2002 2003 2004 2005 2006 2007 2008
Final Situation
Source Gongdon
(2003)
23Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Governments ?The demand for government debt changes… (Central Banks Demand)
BOE announces to buy £75 billion
FED announces to buy $300 billion
24Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Governments ?
Foreign Holders Treasuries(billion of US dollars)
-
500
1 000
1 500
2 000
2 500
3 000
3 500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Asia Emu Europe ex EMU America Other
Foreign Holders Treasuries(as a percentage of the total public debt)
0%
5%
10%
15%
20%
25%
30%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Asia Emu Europe ex EMU America Other
In 1 year, US public debt has increased
with 22%...
… of which 38% has been bought by
foreign holders
The demand for government debt changes… (Foreign Holders Demand)
Debt Held by Foreign Holders
(on total public debt)
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
20012002 200320042005 20062007 20082009
Foreign Holders
25Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Governments ?
Net Purchases of Tresuries Bonds
-400
-200
-
200
400
600
800
2006 2007 2008 2009 S1
Household sector Rest of the w orld Monetary authority Money market mutual funds Brokers and dealers
Treasuries pruchased by households
-200
-100
-
100
200
300
400
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Savings Ratio [R.H.S]
Us Treasury - Households Sector
The demand for government debt changes… (Internal Demand)
In 2006, 7% of treasuries have been purchased by households…
in 2008, 12% !
Real 10Y Government Yield
-6
-4
-2
-
2
4
6
8
10
12
14
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Savings RatioReal 10Y Govt Yield
26Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Governments ?
Holdings of JGB(billion of JPY)
-100 000200 000300 000400 000500 000600 000700 000800 000900 000
1 000 000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Overseas Non-Fin Corp. Households BoJ Debt / Gdp [R.H.S]
The Japanese exampleJapan Government Debt
-1.002.003.004.005.006.007.008.009.00
10.00
82 84 86 88 90 92 94 96 98 00 02 04 06 080
20
40
60
80
100
120
140
160
180
Govt Bench Bond Yield 10Y Debt / GDP [R.H.S]
In Japan, the increase in debt has not caused a rebound of
government yields…
27Source : Bloomberg & Dexia Asset Management Interest Rate Research
The capacity to reach a fiscal equilibrium againCan we really trust Governments ?
Net Borrowing in credit Markets(as a percentage of GDP)
-30%
-20%
-10%
0%
10%
20%
30%
40%
70 73 76 79 82 85 88 91 94 97 00 03 06 09
Government Non-Government
Average of Past Cycle Debt / Gdp
0%
10%
20%
30%
40%
50%
60%
70%
80%
We have calculated an average of the Debt / Gdp for different countries
including Canada, Finland or Sweden…
… after a deep recession, we observe a rebound then a decrease
of the government debt
Years to peak0
28Source : Bloomberg & Dexia Asset Management Interest Rate Research
Yes, we can
The fiscal stimulus avoided new “Great Depression”…Rescue of the banking systemHelp for consumers
…but caused an explosion of budget deficitRecord of budget deficitAnd increase of government debt supply
The increased supply can be absorbed by new demand…Quantitative easing via Central BanksForeign HoldersInternal demand due to increased savings
…if government keeps it credibilityPossibility to the return to equilibriumThe releveraging public sector compensates the deleveraging in the private sector
Can we really trust Governments ?
29Source : Bloomberg & Dexia Asset Management Interest Rate Research
Excess Return of Us Government Bond Market (against Cash 1 Month Index)
-15%
-10%
-5%
0%
5%
10%
15%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
US EMU
The US bond market has offered significant excess returns against money market rates
End of the recession and
tightening cycle
Tightening cycle
End of the recession…
Can we really trust Bonds markets ?
30Source : Bloomberg & Dexia Asset Management Interest Rate Research
Governm ent Bonds Perform ance & Inflation
-5%
0%
5%
10%
15%
20%
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Annual return of US Gvt Bonds CPI (average 12M) [R.H.S]
Governm ent Bonds Perform ance & Monetary Policy
-5%
0%
5%
10%
15%
20%
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Annual return of US Gvt Bonds Fed Fund Target Rate [R.H.S]
An increase of inflation causes a negative return of
government bonds…
The last tightening cycle has not had not a direct impact on government bond yields: it is the famous conundrum
The combination of inflation and a tightening cycle put pressure on bond marketsCan we really trust Bonds markets ?
31Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Bonds markets ?
Global G7 CPI
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
98 99 01 02 04 05 06 08 09
Global Government Bond Yield
2.50
3.00
3.50
4.00
4.50
5.00
5.50
98 99 01 02 04 05 06 08 09
Today, global government bond yield is close to its fair value
G7 Bond Valuation Indicator
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Bargain Area
Expensive Area
32Source : Bloomberg & Dexia Asset Management Interest Rate Research
US TED Spread-1.00
0.00
1.00
2.00
3.00
4.00
5.00
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Implied Volatility
0
10
20
30
40
50
60
70
80
04 05 06 07 08
0
10
20
30
40
50
60
70
80
90VDAX VIX
The recession’s end is near…Can we really trust Bonds markets ?
Probability of Recession in US
0%
25%
50%
75%
100%
63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08NBER Recessions Probability
33Source : Bloomberg & Dexia Asset Management Interest Rate Research
ISM New Orders
20
30
40
50
60
70
80
88 90 92 94 96 98 00 02 04 06 08
New Orders
US Home Sales
0
200
400
600
800
1000
1200
1400
1600
88 90 92 94 96 98 00 02 04 06 08
US New One family Houses Sold
US Auto Sales
5
7
9
11
13
15
17
19
21
23
93 95 97 99 01 03 05 07 09US Auto Sales
Can we really trust Bonds markets ?… due to technical rebounds
34Source : Bloomberg & Dexia Asset Management Interest Rate Research
The household leverage reached an all-time high of 133% in 2007 !!!
Real consumption and real debt are
correlated…
How much further will be the deleveraging process
go ?
But the deleveraging process could substantially impact consumer spending…Can we really trust Bonds markets ?
35Source : Bloomberg & Dexia Asset Management Interest Rate Research
Unemployment Rate
-
2
4
6
8
10
12
95 96 97 98 99 00 01 02 03 04 05 06 07 08
EMU US UK
… and durably affect the labor marketCan we really trust Bonds markets ?
Core CPI & Employment
0
1
2
3
4
5
6
88 90 92 94 96 98 00 02 04 06 08
-800
-600
-400
-200
0
200
400
600
NFP Core CPI
Part time for economic reasons
2%
3%
4%
5%
6%
7%
8%
99 01 03 05 07 09
total employed part time for economic reasons as a percentof all civilian labor force
On the road toa double digit
figure...
The part time has increased
significantly and will put wages under
pressure…
36Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Bonds markets ?
US CPI (yoy)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10
EMU CPI (yoy)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
EMU CPI (mom)
-2%
-2%
-1%
-1%
0%
1%
1%
2%
2%
Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10
Headline inflation will remain in the comfort zone…
US CPI (mom)
-2%
-2%
-1%
-1%
0%
1%
1%
2%
2%
Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10
Seasonal models expect the end of negative
inflation for the months to come
Seasonal models expect the end of negative
inflation for the months to come
37Source : Bloomberg & Dexia Asset Management Interest Rate Research
Can we really trust Bonds markets ?
Inflation & Commodities
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
CRY (yoy) [R.H.S] CPI
…if commodities prices remain under control
GDP & Commodities
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
CRY (yoy) [R.H.S] GDP
The increase of commodities creates
inflation…
… but also a slowdown of the GDP !
38Source : Bloomberg & Dexia Asset Management Interest Rate Research
Myth or Reality ?Can we really trust Bonds markets ?
The bonds Crash could become reality…
If central banks lose the control over the money
Injection of the excess reserves in the real economySale of securities & market instability
If governments lose their credibilityExplosion of the debt without return at equilibriumBuyers' strike of Foreign Holders
In the case of the V recoveryIncrease in risky assets and commoditiesInflation via fiscal stimuli
But the bonds crash remains a myth
Credibility of the central banks Success in the financial crisisUnusual coordinationNew framework to control the reserves
Credibility of the governmentsSuccess in the financial crisisPossibility to equilibriumNew structural demand
No domestic inflation riskHigh level of unemploymentThe risk of the WA too strong rebound of commodities leads a new recession
46Source : Bloomberg & Dexia Asset Management Interest Rate Research
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This document does not comprise any investment research as defined in article 24, §1 of Directive 2006/73/CE dated 10 August 2006 implementing Directive 2004/39/CE of the European Parliament and Council. If this information is a marketing communication, Dexia AM wants to clarify that it was not designed according to the legal requirements to promote the independence of investment research, and it is not subject to any prohibition on dealing prior to the dissemination of the investment research.
Dexia AM invites the investors to always consult the fund prospectus before investing in a fund. The prospectus and other information relating to the fund are available on our site at www.dexia-am.com.
47Source : Bloomberg & Dexia Asset Management Interest Rate Research
Addresses
LuxembourgDexia Asset ManagementLuxembourg SA136, route d’Arlon1150 LuxembourgTel.: + 352 2797-1
BelgiumDexia Asset ManagementBelgiumrue Royale, 1801000 BruxellesTel.: + 32 2 222 52 42
FranceDexia Asset Management SA40, rue Washington75408 Paris Cedex 08Tel.: + 33 1 53 93 40 00
AustraliaAusbil Dexia LtdVeritas House – Level 23207 Kent StreetSydney NSW 2000Tel.: + 61 2 925 90 200
ItalyDexia Asset ManagementLuxembourg SASuccursale ItalianaCorso Italia 120122 MilanoTel.: + 39 02 31 82 83 62
SpainDexia Asset ManagementLuxembourg SASucursal en EspañaCalle Ortega y Gasset, 2628006 MadridTel.: + 34 91 360 94 75
SwitzerlandDexia Asset ManagementLuxembourg SAsuccursale de Genève2, rue de Jargonnant1207 GenèveTel.: + 41 22 707 90 00
The NetherlandsDexia Asset ManagementNederlands bijkantoorLichtenauerlaan 102-1203062 ME RotterdamTel.: + 31 10 204 56 53
GermanyDexia Asset ManagementLuxembourg SAZweigniederlassung DeutschlandAn der Welle 460422 FrankfurtTel.: + 49 69 7593 8823
BahrainDexia Asset ManagementLuxembourg S.A., Middle EastRepresentative OfficeBahrain Financial Harbour,Financial Center, West HarbourTower, Level 23King Faisal HighwayPO Box 75766ManamaTel.: + 973 1750 99 00
CanadaDexia Asset ManagementLuxembourg SACanadian Representative Office77, King Street WestRoyal Trust Tower (32nd floor)Toronto, OntarioTel.: + 1 416 974 9055