Bond Outlook March 7th

As we write, the market correction has paused. For reasons we explained last week (the US housing market obliging US households eventually to align income and spending, and carry-trade unwinding), a pause is not an end. It does however give investors (and commentators!) a chance to reflect without the pressures of an emergency situation.

Let us go back to these same two root causes of the correction and examine what the likely next steps will be in the chain of events:

• If US households are forced to match spending to income, spending must decline.