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Bond Outlook by bridport & cie, March 23 2011

Japanese rebuilding, the Arab Awakening and China’s “Lewis turning point” all point to good news for Western economies wanting to increase exports, but bad for T-Bonds and interest rates.

Our sanguine view last week of the economic impact of the Japan tragedy has already become the general market perception. The swing back from “flight to quality” to “search for yield” has happened more quickly than we could imagine, and even while the consequences of the nuclear plant accident are still unclear.


Likewise Libya, which dominated the news for three days after the UN vote, no longer garners front page headlines. The Arab Awakening is, however, far from over. We lean towards a certain optimism that the popular revolts are genuine attempts to create open societies (rather than fundamentalist Islamic ones), and that the world will benefit, so long as the Tunisian or Egyptian models are followed rather than the Libyan.


With the relative calm that has returned to financial markets, the major trends we have identified over many months and years have returned to the fore. The USD is extremely weak – our first instinct was to use the term “incredibly weak”, but it is not incredible at all. It is simply the inevitable corollary of printing money and maintaining a huge current account deficit.

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