Global trends

 

 

Global bond yields continue to sink in a worrisome way. I have never seen such relentless declines in interest rates (German bunds yielding 0.10%). They reflect global contraction.

If the global economy was expanding they would stabilize around current levels. Interest rates would rise if the global economy was strengthening as heralded.

This is what history teaches, without any exceptions. My point is the decline in global bond yields reflects very disappointing global business conditions.  

Europe meanwhile remains in shambles. The embarrassing decline of the Euro tells the whole story (see above chart).

Countries rushed to join the EU so they could borrow at the low German rates. They splurged in borrowing to satisfy greedy governments. Now they have to pay the piper.

Like Greece and Italy they have to open the door to foreign investors who will slowly buy protected industries.

Foreign investment will force discipline. This is the process forcing Europe to change. It is happening exactly as if each country had its own currency losing rapidly its value due to lack of fiscal discipline.

Markets are very efficient. Large currency areas do not protect inept governments.  

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor, The Peter Dag Portfolio

Since 1977

Author, Profiting in Bull and Bear Markets

No. 1 bond timer in the past 12 months. 

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