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Bond tantrum continues

Published Wednesday, May 13th, 2015

We are hearing a lot about black holes, liquidity vacuums, air pockets, buyers strikes, crowded trades and herding. They are simply different ways of reminding us that these are dangerous and very nervous times in bond and stock markets. Bond volatility featured again yesterday with 10-year Bunds reaching as high as 0.74%, and 10-year Treasuries 2.37%. European equities had a poor day with the Eurofirst 300 down 1.3%. It turns out that Greece was only able to repay the IMF by taking funds from its emergency drawing rights’ account at the IMF itself.

Everybody knows that valuations are stretched and warnings abound that corrections are long overdue. There have been 49 interest rate cuts since the beginning of the year as countries wrestle to prevent their currencies appreciating and try to stimulate their economies. The OECD says that economic momentum is stable according to the data, but it does not feel like it. The so called recovery feels patchy and unreliable. As one continent does better another falls away. The QE experiment remains just that. There has been no successful exit and there is no proof yet that it can generate sustainable economic growth.

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Posted by David Hufton