In a long-standing Hallowe’en tradition, the team at M&G Bond Vigilantes have chosen to torment our readers and theirs with some terrifying charts. Associate investment specialist Jack Ridge is the in the spooky seat this year, and he’s has given us an early sight of their scary seasonal offerings. Just don’t say we didn’t warn you [eerie ghost noises]…
Fixed Income investors may find themselves shutting the curtains and hiding under the sofa this Halloween. There is much to be fearful of — deterioration of developed market fundamentals, falling labour market confidence and slowdown indicated in shipping. And that’s just the beginning!
This pumpkin-spiced-latte season, we take a look at seven charts which look beyond the rally we have seen in risk assets. Maybe it is best to check under the bed for risks…
Happy Hallowe’en!
1) The EM-ification of DM? Investors find DM fiscal sustainability scary
As developed market economies continue to carry historically very high levels of debt, and with government bond issuance at all time highs, there is increasing convergence in volatility between EM and DM. The fundamentals in EM look solid, but there has been a deterioration across DM. This werewolf-type switch hasn’t gone unnoticed, and markets are starting to price this in.
The full moon has DM fundamentals howling…
2) Darkness approaching? Labour market confidence signalling recession?
Strain in the labour market is a classic sign of a recession. The Conference Board Consumer Confidence Labor Differential is suggesting some significant deterioration in the availability of work. Spotting a recession is easy in hindsight, but perhaps it has already made its way into the house under cover of darkness? The shape looks familiar to that of recessions gone by… could history be repeating itself?
Nightmare on Main Street…
3) Interest expense taking the opportunity of better services away?
US government debt levels have been soaring in the last 10 years. We find ourselves in a situation where interest payments servicing US debt are well in excess of their defence budget ($800bn)! With so much money being spent on interest, what are the consequences for citizens in terms of services, and what effect does this have on growth? Is this a downward spiral that is tricky to escape?
‘Do you like scary net interest expenses?’ Enough to make you SCREAM…
4) A terrible fright in US freight — leading indicator for slowdown?
The Cass Freight Index is a measurement of monthly freight activity. A combination of restrictive monetary policy and a weakening consumer has led to a deterioration in the data, and the impact of tariffs are yet to be fully felt. We are approaching levels that we last saw during the Global Financial Crisis — indicating a serious slowdown in the economy. Perhaps there is something more malicious lurking under the surface in the global economy? Are we yet to feel the full effects?
We’re gonna need a bigger boat…
5) A trick for equities, a treat for fixed income?
During the 2010s there was no alternative but to invest in equities. However, this is no longer the case. Bonds are back! Back to 1881, the excess CAPE Shiller earnings yield has been a strong indicator of subsequent 10 year returns in equity markets. The 2010s produced supernormal returns, but valuations are becoming increasingly stretched. At current levels, the S&P 500 would return 1.6 per cent annualised over the next 10 years. With risk-free 10 year US Treasuries offering a return of 4 per cent, bonds are considerable more attractive. All this before picking up the extra return on offer in credit markets, and [potential — Ed] outperformance from here with an active manager!
‘Who ya gonna call?’
‘Fixed Income!’
6) A Sixth Sense in the US auto loan market?
There has been a strong uptick in serious auto loan delinquencies (defined as repayments 90+ days past due) as the impact of the higher rates environment has been felt by consumers. We are now at levels approaching that of the GFC. Perhaps this shows us the weakness that is being felt by the consumer. Over the course of this chart, the total debt outstanding in auto loans has risen from $800bn in 2008 to $1.65 trillion in 2025 (acknowledging inflation and the rise in car prices in this period, albeit many more cars are now on financing deals).
‘I see dead auto loans’ — are we approaching a 2008-style waking consumer nightmare?
