Tension is rising in the interbank credit market and PIIGS bonds
LIBOR rates are now at new multi-month highs. Fearful of counter-party risk, European banks are refraining from lending to one another, hoarding cash with the ECB. Moreover, the PIIGS bonds are struggling. The Italian 10-year bond yield, for example, have surged all the way back to the pre-bailout levels. A similar outlook is noted for the Spanish long-term bond yields.
The new buzz word for the coming period is likely to be “Sovereign Debt”. Aside from the levels of national debt in the US & UK, there has been a stream of bad news coming out of places such as Iceland, Dubai, Greece, Spain, Eastern Europe, and the Baltic States in respect of their ability to repay debt at a country or “sovereign” level.
Life after QE? Sovereign debt and double-dips – corporate bond and property yields appear the best bet
Reflecting on the last quarter of 2009, whilst the main UK & US equity markets did not fall back as we suspected they might, they have traded sideways for several months now. Many of the reasons for our previous caution remain valid today; in fact we believe that the continuation of the Quantitative Easing (QE) programmes on both sides of the Atlantic have merely delayed the correction.
The Fish Financial Blog sent to you