Thursday, November 24, 2011

Reverse Bond Vigilantism -- How is that austerity thing working out for you?

Let me see if I get this correctly: Monetary and fiscal austerity reigns over Europe like Napoleon. And beyond to the UK. So what is happening to sovereign bond yields? They are down, right?

In rough numbers, and for 10 years unless noted:

Spain 3 month over 5%
German auction fails by 40%, yields rising
Austria 4%
France 4%
Belgium 5%
Italy 7%
Spain 7%
Portugal 12% if I am reading Bloomberg correctly
Greece 30% ibid

While the risk premium is rising surely just because the Euro zone is currently so dysfunctional, clearly the bond vigilantes are not driving up rates because they think the economies will boom, not even the core economies.

Thus, can this be the last time we have to hear about how austerity must be invoked to please the bond vigilantes? Please? And focus on what they care about, which is growth (since they are after all Keynesians). And then we can fight the correct fight, which is over the meme of austerity-led growth. That one is easy to win. Nope, not even Canada. Sorry.

Update: From Tim Duy at Fed Watch, looks like Eurozone industrial production is tanking, leading growth forecasts down. The blue line headed almost straight down is the result of austerity, and doesn't look like growth to me. This chart also indicates US decoupling from the coming Eurozone depression may be difficult.

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