economic situation in an economy

Describe and analyse the current economic situation in an economy (or economies) of your choice. Discuss the outlook for short-term interest rates and/or bond yields. Do not make this section a general review of global economic developments. The analysis should support your chosen trading strategy. Address some of the following questions:

€¢ Is economic activity picking up or slowing down?
€¢ What is the current trend of borrowing activity in the household and corporate sectors and is it sustainable?
€¢ What is likely to be the impact of any changes in government policy?
€¢ What is happening to economic activity and policy in the major trading partners?
€¢ Is there any evidence of unsustainable imbalances building in the economy?
€¢ How much available slack is there in the economy?
€¢ Is there any evidence of inflationary pressures increasing?
€¢ Is the central bank likely to be raising or lowering interest rates over coming months?

You may include tables and charts to support your argument. This section is likely form up to about 1000 words or about one third of the project. 30% of the marks available will be rewarded for this material.
2. Evaluate what is currently discounted in the market

Examine what is currently discounted in the interest rate markets and assess whether there is a trading opportunity based on your evaluation of the economic outlook. You should address some of the following points, where appropriate to your choice of particular strategy:

€¢ What is priced into futures contracts concerning central bank policy?
€¢ What are the forwards discounting for the path of bond yields?
€¢ How is the shape of the yield curve priced to evolve?
€¢ What are the forwards discounting for short rate or bond yield spreads relative to elsewhere?
€¢ What allowance for risk premiums should be made in inferring what is priced in to the forwards?
€¢ How are risk premiums likely to behave in the circumstances of your outlook for the economy?
€¢ What are the risks or possible scenarios relative to your central case view?
€¢ How are the risks skewed, in your opinion, relative to the forwards?

You may include tables and charts to support your argument. This section is likely to form up to about 1000 words or about one third of the project. 30% of the marks available will be rewarded for this material.