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What is the Output Gap

The output gap, also known as the production gap, measures the difference between an economy's actual output and its potential output. Potential output represents the maximum sustainable level of output an economy can achieve given its available resources, such as labor, capital, and technology. It's a

What Is Risk Premia?

Risk premia refers to the additional return an investor expects to earn for taking on higher risk when investing in a risky asset compared to a risk-free asset like government bonds. Below are some key points about risk premia: * It represents the compensation investors demand for exposing their capital to

What Is "Higher For Longer" For Interest Rates?

"Higher for longer" in the context of the money market refers to the expectation that interest rates will remain elevated for an extended period. This phrase gained traction in 2023 as central banks worldwide, including the US Federal Reserve, raised interest rates aggressively to combat persistent inflation. The

What is Core Inflation

Core inflation refers to a measure of inflation that excludes volatile components like food and energy prices. These items are often subject to significant fluctuations due to factors like weather events, geopolitical instability, and seasonal variations. By removing these volatile components, core inflation provides a more stable and reliable gauge

What is Duration Risk

Duration risk, also known as interest rate risk, is the sensitivity of a bond's price to changes in interest rates. When interest rates rise, the value of existing bonds falls, and vice versa. This is because investors demand a higher return for holding a bond when rates are

What Is Bond Equivalent Yield

Bond equivalent yield (BEY) is a standardized way to compare the yields of different bonds, particularly those with maturities less than a year, like Treasury Bills (T-Bills). Since T-Bills are sold at a discount to their face value and don't pay periodic interest, their yield is calculated based

What Are The Major Categories Of Economic Indicators

Economic indicators are statistical data that reflect the health and performance of an economy. They provide insights into various aspects of economic activity, such as production, consumption, employment, and inflation, helping economists, policymakers, and investors make informed decisions. These indicators are broadly categorized into three major groups: * Leading Indicators: These

How Do Central Bank Policies Influence Investment Opportunities?

Central banks play a crucial role in influencing investment opportunities by manipulating interest rates and controlling the money supply. There are several ways that a central bank's policies will affect investment opportunities and asset classes. Exchange Rate: The decisions of central bank heavily influence the exchange rate, which

What Are Systematic Investment Strategies

Systematic investment strategies are a disciplined approach to investing that involves pre-defined rules and automated actions. Instead of relying on emotional decisions or market timing, these strategies focus on consistent, long-term growth. They typically involve regular, predetermined investments, often at fixed intervals, regardless of market conditions. This disciplined approach helps

What Are Causes and Impact of Inflation

Inflation is a persistent increase in the general price level of goods and services in an economy over time. It erodes the purchasing power of money, meaning that a dollar today buys less than it did in the past. There are various factors that contribute to inflation, and its impact