Bond Outlook August 26 2009

After our muted rejoicing last week that the world is undergoing its needed rebalancing, the time has come to look at what is still, for the West at least, the most important single economy: the USA. The more we look, the greater the discouragement we feel, along with a sense of wonder at whether financial markets are looking at the same data as we are. Again we see a divergence between market sentiment and economic fundamentals.

The fall in GDP may have been stopped by the various stimulus programmes including “cash for clunkers” and the USD 8,000 subsidy for first-time house buyers.