Bond Outlook April 21 2010

For many months we have been fretting about government debt, which is no longer being financed by quantitative easing, and must therefore compete with the private sector for funds, thereby pushing up yields. This is one of the major pillars of our argument that recovery can only be anaemic (the other is the forced commitment of households in deficit countries to save more and spend less). The fear about the private sector being crowded out is now finding support from the IMF in its “Stability Report”.