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News Link • Government Debt & Financing

Gonzalo Lira: Bonds Are Doing Great! . . . Until They’re Not

The $12 trillion question, of course, is what happens when sovereign debts start to tumble this year—and what happens to bond yields when inflation starts to raise its ugly head. After all, when sovereign debts start going redline and/or inflation starts to rise, corporate bond yields start to widen—bond prices start to tumble. Banksters start throwing themselves out of windows. (On second thought . . .) As I wrote over the weekend, UK inflation is coming on strong, and out in Asia, inflation is the big story, especially of foodstuffs. Since commodity prices across the board—PM’s, industrials, agro, oil—are all on the rise, and have been for the past year and a half, it’s reasonable to think that inflation will officially hit Europe and North America soon: Soon like this winter/spring. (Unofficially, ordinary consumers have known about shadow inflation since at least this past late-summer.) And let’s not even mention sovereign debt bombs—I mean, bonds! Or bombs. Whatever. Hell, European sovereign debt is like nitroglycerin in a shake-and-bake pouch: Ready to go off at the first signs of trouble. Looks like the EU is strong-arming Portugal and Belgium into a pre-emptive “bailout package”—sort of like saving the two countries before they go into crisis mode.

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