Ragin’ Cajun James Carville – sometime factotum to Bill Clinton – used to say that when he died and was reincarnated, assuming such a thing could happen, he’d like to come back as the bond market. So he could intimidate everybody.
As reader Peter Cooper points out:
The nightmare scenario for the bond market is upon us. The biggest rally in US equities since 1929 happened yesterday while the bond market was closed for a public holiday… There is going to be an absolute bloodbath in the bond market.
The spread on the 1Y UK Gilt is currently down 30bps. Here’s what the future’s market indicated yesterday for US Tbills – from Alea:
Consider not just yesterday’s stock market rally, but also the fact that structurally speaking, the US T-bill market is awash with bills. The huge — unprecendented — spike in issues of late has been fuelled largely by risk averse investors in one of the biggest ever flights to quality. The market is being propped up a long way above its traditional buyer-base.
And issuance is about to surge again to fund the TARP. Here’s the projection from Jeffrey Rosenberg at Bank of America:
Of course, the pattern is being repeated everywhere. Governments are all announcing their own huge liquidity/recapitalisation plans.
Debt markets of the world, inflate!