Brown to be bonded for eternity

The Excellent Neil Hume has this over at FT Alphaville. Basically, as we go through this 'rally' (still likely to be bear market, but we'll see) in shares, Bonds become less of a good thing.

Last year, when share prices crashed, people bought bonds. Mainly US ones, but all bonds. Despite them having no yield (i.e. effectively cash) at all. This was very handy for high spending governments that had lost control of their public finances. This includes most of the Western World.

However, it has become obvious that this move in and of itself has been a bubble. All the hot money in the world moves very quickly these days. First half of last year was oil and commodities, then bonds..what next? Previously it was US mortgages and Private Equity. Maybe Shares will get a rally one the back of this move this year.

Anyway, back to the main point. Bonds are not going to be so attractive in 2009. Even Guido is shorting gilts. How Brown and darling must have quivered when even Germany, fiscally responsible Germany, could not get 32% of its latest bond issuance away.

Brown and Darling will have to borrow up to £180 billion this year. Adding a couple of percentage points of interest as a sweetener will decimate UK public finances for a decade.

I don't see anyway out of this trap. He had better call an election before everyone figures out we have a national 'together' mortgage.

Who next for the Bond market crunch machine?

It might seem an odd title, but things are afoot in the market even as we approach the year end of a truly annus horribilis.

There may be rays of light for the Government in seeing its investment in RBS creep over the rights issue price, but there is gloom elsewhere.

So much gloom in fact that the measure of Bond risk on corporates in Europe has soared to its highest ever level. This sounds obscure to many I am sure (as the does name - itraxx crossover index), but rest assured these were the kind of levels seen in the US prior to Lehman going down in September.

No one can really say how much hedge fund redemption's and other weird market effects are having. But from the stress indicators it seems likely another large company or organisation in Europe is going to suffer from a run on the company and go down in the next few days.

Perhaps it will all pass and the stress will leave the system, however that is not the pattern we have seen throughout the year so far. I think it likely that this is the beginning of the stage when we will see the damage spread further beyond Financials, Housebuilders and retail, perhaps into manufacturing.