The latest developments in Greece have shown that the warning is fully justified. Sovereign debt defaults may still occur, and the single currency system in Europe may not survive in its present form.
Strathclyde Associates based in Korea, Bond Markets: Prospects for bond markets in mainland Europe are therefore particularly uncertain. Not all markets elsewhere will be similarly affected, and some may even continue to benefit from the problems in Europe; but higher bond yields everywhere seem to be unavoidable. The US bond markets appears to have achieved an enhanced “safe haven” status, and has improved slightly over the over the past month. The recovery in the economy is only proceeding at a very slow pace, and the Fed is clearly intending to keep short-term interest rates at “exceptionally low levels”. But there are also serious funding problems in the market resulting from the huge fiscal deficit, and so it seems unlikely that the deficit can be adequately financed at present yield levels.
Strathclyde Associates based in Korea, Bond Markets: “Strathclyde Associates, Korea”: Prospects for bond markets in mainland Europe are… particularly uncertain. Not all markets elsewhere will be affected, and some may even continue to benefit from the problems in Europe. The latest evidence on the economic performance is encouraging. Retail sales rebounded sharply in March; non-farm payrolls increased at the fastest monthly pace for three years in the same month; and both manufacturing and service sector output was higher.
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