Bond Outlook February 24 2010

Unfortunately the illiquidity in bond markets which appeared a fortnight ago has returned after the respite of a holiday week. Bid/ask spreads are widening and screen prices are unreliable. The lack of confidence among market makers is mirrored by renewed declines in consumer and business confidence data. The recent strengthening of the USD has put the dollar carry trade at risk, with a strong likelihood of short-dollar positions being unwound and the non-dollar assets concerned falling in value.