Government Bond Bubble forming

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We have spoken before on this blog about the likelihood of a treasury/govt. bond bubble forming. The indicators were out last year when we saw negative margins in the secondary market for US TBills. What this meant was that rather than earning interest to hold Tbills people were actually paying to hold them.

This, matched with the TARP and Stimulus packages mean that government bonds will need to increase the yield to get buyers when the flight to safety that has propped them up so far dissappears.

The manifestation of this will probably result in a severely weakened US dollar, if this happens then the EU will be forced to devalue to some degree so that it doesn’t totally decouple from the world economy, although some hegemonic status in the Euro wouldn’t be a bad thing in terms of providing future protection to the Eurozone.

A counterpoint is in the video below by Hugh Hendry

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