Aurelia Butler

However, the intangible nature of the term premium presents challenges in its measurement, leading to a variety of estimates among central bank economists. This focus on the elusive term premium further complicates predictions about future interest rates.The rise in the term premium is being held responsible for triggering bond sell-offs, shifts in debt auctions, and changes in interest-rate policy. It includes all aspects other than expectations for the path of near-term interest rates, making it a critical factor for market observers. Nevertheless, this focus on the term premium adds to traders’ struggles in predicting the Fed’s next moves in the complex U.S. government debt market.Despite its complexity, understanding this new force is becoming increasingly crucial for market observers and traders alike as it continues to impact long-term rates and influence Federal Reserve policy decisions.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nvidia has developed three new chips tailored for China that aim to meet the region’s growing demand for artificial intelligence technology while complying with US export controls, according to leaked documents and four people familiar with the situation.The latest effort marks the second time in little more than a year that Silicon Valley-based Nvidia has been forced by new US regulations to reconfigure its products for Chinese customers, as it strives to maintain its foothold in one of its most important markets. Nvidia is preparing to launch the new chips just weeks after the US restricted sales to China of high-performance chips that can be used to create AI systems, in the Biden administration’s latest salvo in a tit-for-tat tech war between the two superpowers. The three new Nvidia chips are named the H20, L20 and L2, according to a document distributed by the company to prospective customers that was obtained by the Financial Times. The overall performance of these chips has been moderated compared with those that Nvidia had previously sold in China. Nonetheless, the new graphics processing units were expected to remain competitive in the Chinese market, said the people familiar with the situation.“Nvidia is perfectly straddling the line on peak performance and performance density with these new chips to get them through the new US regulations,” wrote analysts at SemiAnalysis, a chip consultancy, in a note to clients on Thursday. Nvidia did not immediately respond to a request for comment.Nvidia was co-founded by Jensen Huang, who is also its chief executive. The company’s market value soared to more than $1tn this year driven by investor enthusiasm about its dominant role in the processors needed to develop AI systems. Its A100 and H100 chips have become the most sought-after components for AI companies around the world that want to create large language models, the technology that underpins chatbots such as OpenAI’s breakthrough ChatGPT. As the US sought to constrain China’s AI development, the Biden administration blocked sales of the A100 and H100 GPUs in October 2022. In response, Nvidia developed two alternative models for China, the A800 and H800, which fell below the performance threshold set by US sanctions. But the US last month tightened its restrictions so that they also caught the A800 and H800.The latest export restrictions took effect immediately as the US government speeded up the deadline, leaving Chinese tech groups dependent on outdated and stockpiled chips to pursue their AI ambitions. The rules were seen as forcing Chinese groups to turn to six-year-old technology to develop AI systems. But Nvidia, which has held a dominant share of China’s AI chip market, is moving quickly too. The manufacturing process of its latest chips for China was less complex than the development of the A800 and H800, said a person familiar with the situation. Nvidia has already sent samples of the chips for customers to test, suggesting it expects mass production to begin very soon, according to two people close to the company. In the interim, Chinese companies have redoubled their efforts to source AI chips from domestic suppliers, reducing the risk of relying on Nvidia and accommodating the escalating AI chip ban. Prominent Chinese Nvidia competitors include Huawei, Cambricon and Biren. The founder of Chinese AI company iFlytek said in August that Huawei’s Ascend AI chip could achieve performance comparable to Nvidia’s A100. However, Nvidia’s Chinese rivals are all constrained by geopolitical conflicts that prevent them from producing chips outside of China, while international sanctions have also sought to limit their access to advanced chipmaking equipment from suppliers such as Netherlands-based ASML. Video: The race for semiconductor supremacy | FT Film More

Lane’s comments imply the ECB, which is now mopping up cashfrom the banking system as part of its fight against inflation, is likely to go back to pumping it in at some point in coming years to ensure lending to the economy doesn’t dry up.The ECB promised to devise by the spring a new framework for steering short term interest rates after a decade of massive money printing, which flooded the banking system with some 3.6 trillion euros ($3.85 trillion) worth of excess cash via bond purchases and loans. The key questions now are just how big the ECB’s balance sheet should be under the new framework and what kind of assets should be on it.”The appropriate level of central bank reserves can be expected to remain much higher and be more volatile in this new steady state compared to the relatively-low levels that prevailed before the global financial crisis,” Lane told a conference.”Even if much lower than the current level, the appropriate level of central bank reserves in the ‘new normal’ steady state should avoid the risks associated with excessively-scarce or excessively-abundant reserves,” he added. Total assets owned by the ECB have already fallen by nearly two trillion euros from their peak but at seven trillion euros, they are still well above the one to two trillion euro range seen in the early years of the central bank. Lane said the ECB needed to stick to a ‘middle path to underpin the willingness of commercial banks to extend credit in spite of the risks associated with illiquid assets in a world much more prone to macro-financial shocks. He added such reserves should be provided through “structural” bond purchases and longer-term loans to banks on top of standard short-term refinancing operations.In addition, Lane said the ECB should remain open to sustained surges in its balance sheet in case interest rates fall back to their effective lowest level, a problem that dominated the decade before the pandemic.($1 = 0.9361 euros) More

Jeremy Hunt has signalled his intent to overhaul tax-free savings and investment accounts at the Autumn Statement on November 22, and speculation continues to build about what form this might take. Granted, there are plenty of competing priorities for the chancellor’s limited fiscal firepower, but individual savings accounts (Isas) are a mass-market tax break enjoyed by 13mn people. Ironing out kinks in the current system wouldn’t necessarily cost that much, but it would encourage people to save and invest more for the future — plus deliver some much-needed help for first-time buyers. Here are five ways I think he could put fuel in the Isa tank. 1. Raise the £20,000 annual Isa limit I appreciate this request is unlikely to be granted, but it would solve a looming savings tax problem that most people are blissfully unaware of.You may be overjoyed at being able to earn 5 or 6 per cent interest on cash savings — but an estimated 2.7mn people will have to hand some of this back to HM Revenue & Customs in the current tax year.£8,330The amount higher-rate taxpayers can save before hitting the tax-free limit, based on a 6% interest rateTwo years ago, broker AJ Bell calculated higher rate taxpayers could have stashed away £77,000 in the top-paying savings account before exceeding their £500 personal savings allowance. Today, they’d only need savings of £8,000 to hit it, and will have to pay 40 per cent tax on any further interest. Basic-rate taxpayers have a more generous £1,000 savings allowance, but additional-rate taxpayers get nothing at all. What’s more, the lower additional-rate threshold of £125,150 (cut from £150,000 in Hunt’s first Budget) means even more will be snared by a 45 per cent tax charge on any savings interest. “If I’m saving but half of my interest is taken away, then maybe I won’t save,” says Victor Trokoudes, co-founder of Plum, the smart money app.The obvious answer is saving into a cash Isa — but this could mean fewer people investing in stocks and shares Isas when the financial regulator is keen for more to do so. Increasing the Isa limit would achieve the chancellor’s goal of making tax-free accounts more popular, and make it easier for people to transfer in their other savings accounts in one go. Avoiding the savings tax would reduce the hassle factor for individuals and HM Revenue & Customs, which will otherwise have to collect it via self- assessment or by tweaking millions of individual PAYE tax codes. Given its current difficulties answering the phone, this could be a wise move.2. Kill off the Lifetime IsaMartin Lewis, founder of the MoneySavingExpert consumer advice site, has branded the Lifetime Isa a “dead duck” unless the chancellor fixes the property price cap penalty. In 2017, I warned first-time buyers hoping to turbocharge their deposit savings that there was no promise the £450,000 price cap would rise in line with house price inflation. Had it done so, it would be around £560,000 today.Worse, the rising number of homebuyers, who have been priced out, lose the bonus and a chunk of their own savings if they withdraw cash before age 60. HMRC statistics show just over £47mn was forfeited by young savers last year. The complicated rules mean that none of the major banks offer the Lisa to their customers. Plus, it’s ageist — the cut-off for opening an account is age 39, only a few years older than the average first-time buyer. As an alternative retirement savings vehicle, the Lisa appeals to young self-employed people, but the “free money” of employer workplace pension contributions and tax relief will be a better deal for most. Should the dead duck quack its last, account holders should be given the option to transfer their money and any bonuses earned penalty free to another Isa product. 3. Bring back the Help to Buy IsaThe need to help first-time buyers is a huge election issue, and I will be flabbergasted if there is nothing in the Autumn Statement to address this.“Most first-time buyers will have seen their borrowing power reduce by around 25 per cent since the start of 2022 due to higher stress tests on mortgage interest rates,” says Graham Sellar, head of business development at Santander Mortgages. “At the same time, average house prices are still up over the past two years. So it’s harder to borrow enough, and harder to save enough.”Helping more of them save towards a deposit would be less inflationary than bringing back government-backed equity loans on new build homes, for example.The Help to Buy Isa was designed solely with this purpose in mind, so it fits the Treasury’s simplification brief. All the major banks and building societies offered it; indeed, most have legacy customers who can keep saving into them until 2029, so it would be easy to relaunch. Deposit savers get a 25 per cent government bonus when they buy a home. If plans change, they can withdraw their savings (plus interest) without penalty. Hunt would need to increase the property price cap of £450,000 in London and £250,000 elsewhere, and should double the monthly savings limit from £200 to £400 so the maximum bonus is comparable with the Lisa.4. Let people pay into more than one IsaYou can pay into more than one pension in a given tax year — so why not Isas? The current rules only allow you to pay into one cash Isa, one stocks and shares Isa and one Lifetime Isa.Around 2mn savers still have a Help to Buy Isa account, but if they’re saving into that, they can’t fund another cash Isa unless it’s with the same provider — even though it may not offer the best rate of interest. This also limits consumer choice in the investment world. You might want to split your allowance between, say, a Vanguard stocks and shares Isa to get low prices on its range of tracker funds, and have a riskier share trading account with an app-based Isa provider. But you can’t have both. 5. Resolve the fractional shares rowFinally, tens of thousands of young UK investors will hope Hunt will do the right thing and clarify that fractional shares are permitted to be held within an Isa.Fractionals enable investors to buy stakes in expensive US stocks such as Apple, Amazon and Tesla from just £1, rather than saving up hundreds of pounds to purchase a single share. As I’ve argued here before, owning a stake in these mighty global brands is a powerful attraction for the next generation of investors. If they can learn about the power of tax-free investing as they do so, it’s a valuable lesson.Whatever shape Hunt’s reforms may take, the more people who can be switched on to the benefits of tax-free saving and investing, the better. Claer Barrett is the FT’s consumer editor and the author of ‘What They Don’t Teach You About Money’. [email protected] Instagram @Claerb More