Bond Market Twilight Zone

In July 2012, amid a backdrop of serious uncertainty over the future of the euro, ECB President Mario Draghi told the world that the central bank would "do whatever it takes" to save the currency.

People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time. Here is a chart going back 20 years from Steen Jakobsen at Saxo bank in Denmark. Click on Any Chart in this Post for Sharper Image $TYX 30-Year Long Bond

Realization the Eurozone is no longer tenable is at long last recognized. In fact, "intense discussions" have been underway for months but are just mow admitted to by senior EU officials.Bloomberg reports U.S. Stocks Extend Declines on Concern Nations May Exit EuroU.S. stocks extended declines following a report that German Chancellor Angela Merkel’s party wants to make it possible for European nations to exit the euro area.

I would highly recommend that you take a look at Adam Pozen’s talk “The Realities and Relevance of Japan’s Great Recession – Neither Ran nor Rashomon“. His point is that poor Japanese economic performance, though of course not unrelated to the bursting of asset bubbles, was fundamentally caused by policy errors and that when better policies were implemented growth became strong:

ECB President Mario Draghi commented in a speech today that the ECB was "ready to do whatever it takes" within its mandate to preserve the single currency. I have to ask, is that even news? Apparently it it to the stock market which has gapped up over a percent. Bond yields in Spain also reacted to the non-news. Yield on the 10-year Spanish bond fell all the way (drum roll please) to 6.95%. Is that really anything to be giddy about?

MyPlanIQ submits:Sentiment in the credit market was lifted by encouraging economic data last week, but volume was low ahead of the holidays. Fixed-income driven portfolios (such as MyPlanIQ’s Momentum Bond Fund) started to stabilize in the second half of this year due to improving trends. We make the following observations about last week's development:

Cliff Wachtel submits: US