Curse of the Wolfman - Financial Markets Outlook

06/04/2009

FT columnist, Martin Wolf, has welcomed the recent rise in bond yields as suggesting:
- An end to fears of deflation
- Normalisation after a panic
He goes on to argue that bond yields are not suffering through “crowding out”, or that yields are being pushed up by issuance indigestion.
We find ourselves in agreement with some of Mr Wolf’s views, but we would stop short of actively welcoming the recent bond market moves.
Though it is true that markets may have panicked on the downside, in our view, they are responding with “excessive relief” on the upside.
Market yields and prices have bounced in a way that makes a near-term correction in sentiment and activity look likely.
Rather than welcoming the recent bond market sell-off, we fear this move may “curse” the nascent improvements recently observed.