Bond Outlook by bridport & cie, April 6 2011

The US economy is recovering, but only because of cheap money. In contrast, Europe appears to on a path to normalisation of bond markets and central bank policy.

The parting of the ways between the USA and Europe on military matters (the USA stepping back from a leadership role in NATO over Libya) has parallels with each region’s economic policies:

in the USA, the recovery, whilst real enough in terms of corporate profits and employment, is dependent on cheap money and quantitative easing
in Europe, despite the peripheral problems, a move towards normalisation in financial markets, especially for sovereign and bank bonds, is underway, with the ECB expected to increase interest rates as we write

The EUR is strengthening whilst the USD weakens.