Bond Outlook January 13 2010

The doubts we expressed last week, that the positive atmosphere of financial markets contradicted economic reality, have continued to grow. Unemployment in the USA and housing foreclosures are still rising. What GDP growth that is being achieved is dependent on government stimuli, and now, overhanging everything, is the end of quantitative easing foreseen for March. Deflation remains and may worsen even though government borrowing is likely to push up US long-term rates; they have already risen from 4.2%