Financial markets update

  • Bitcoin soared 50% last week to over $17000. The crypto-currency has been one of the hottest topics in financial markets over the past several months as it has swung wildly in value. Indeed, this week for the first time bitcoin futures are being released which will surely facilitate a much greater volume of speculation.

  • After the announcement of a ‘Breakthrough’ in the Brexit deal, with an arrangement for the Irish border secured, the pound climbed to over $1.35 on Friday December 8th, yet finished the day at $1.3377. On the same day the yield on the 2-year policy sensitive gilt hit 0.567%, its highest since June 2016.

  • In the US, yield curve ‘flattening’ has proceeded at its fastest pace since the financial crisis. This process refers to a reduction in the difference between two and ten-year Treasury yields. Whilst some investors see this as an omen for recession, others point to structural factors such as low inflation expectations as well as relative quantities of different Treasury assets in financial markets.

  • McGraw Hill Education was forced to abandon a $250 million sale of pay-in-kind (PIK) toggle bonds. A PIK toggle is one of the riskiest forms of debt as it allows a company to pay interest by simply adding to the total debt owed should its cash levels run short – as such, the private-equity owned textbook publisher was offering interest rates of 10%. Despite such attractive returns, investors were too wary of the provisions underlying the debt sale for it to go through.

  • Gold dropped $30 last week to below $1250 an ounce – hitting its lowest since July. This highlights the pressure that rising interest rates are putting on the precious metal: as rates of return from holding cash or cash-related assets rise, the attractiveness of such metals typically declines.

  • Flows into financial sector stock funds in the week to December 6 hit $25 billion. Optimism for bank shares has been bolstered both by Trump’s corporate tax reform and the incoming Fed chair Jay Powell’s hinting at looser financial regulation.