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Bond Outlook March 7th

The market correction is not over, as the root causes, housing and carry-trade, remain. A slowdown in the USA means interest rates, except in Japan, at or near their peaks.

Bond Outlook [by bridport & cie, March 7th 2007]

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. Whether the decline goes all the way to a recession or just to anaemic growth is the unanswerable question.

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