Latest G10 Macro Rates Blog
With Shayne Dunlap, Co-Portfolio Manager
The IMF loves Macro - now!
Well to answer the question, we first need to look where we have been.
Macro has generally suffered since the initial rapid response by Central Banks post the demise of Lehman’s a decade ago. This is primarily because interest rate policy has been stagnant ever since, driving volatility of market rates to record lows. There were a few blips such as the Bernanke taper tantrum, Italy and Greece Euro crisis. But these were sell volatility events. This benign status quo has changed.
Voting backlash via the likes of Brexit, Trump, Italy, Trade wars (slowing global growth) and the beginnings of normalising rates by some CB’s has started a new age whereby market unpredictability is no longer dormant. Nor does it look like this is a temporary phenomenon. The global issues of human migration, wealth divide, population growth and rise of partisan politics (notably the far right) and record global debt levels are all things not to be solved quickly. Macro thrives in this environment, Beta doesn’t.
Macro traditionally has its returns linked with market volatility and thus should be considered as a serious sector to invest in when looking to diversify risk away from Index exposure.
“With the global burden of public and private debt still growing, the IMF said financial vulnerabilities were increasing. The pressure was likely to mount because economic growth rates were expected to slow in the medium term. International co-operation was also undermined by rising inequality and the advance of populist governments following nationalist policies.”
Financial Times - 09 October 2018
Chart below shows debt owed by governments, companies and households
has risen sharply since the crisis. (trillions of dollars left scale, percent of GDP right scale)
Sources: IMF Global Database (2018); and IMF staff calculations.
Note: The chart is based on debt in 29 jurisdictions with systemically important financial sectors.
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