This comes somewhat reduce the total volume

Government bonds decline in Europe and the United States since the beginning of the year. The debt fundraising records raise concerns about the ability to pay of States. The threat of inflation is returning to haunt minds. Matthew praise analyzes the forces that currently dominate the market.

Do you believe that the record amounts of debt issued by the States can be at the origin of a bond crash

An abundant supply of securities does not necessarily penalizes the market. Seen in the past, episodes of recession often result increased demand for State papers, considered more safe. It is true however that we are dealing this time exceptional volumes, which weighs a little on the bond. We should also look at the market as a whole and see if sovereign emissions is not offset by a decrease in the levees in the private sphere. Here too, the situation is fairly new, since appeared debt guaranteed by the State, and on the other hand, companies throw large amounts. But, do not forget that several segments of market remain stalled: secured debt, such as the bond, collatéralisées bonds ("asset backed securities"), which are collateralized debt portfolios, (riskier) subordinated bank debt and debt of enterprise noted in category speculative ("high yield"). This comes somewhat reduce the total volume.

There is the debt of the States not more defiance today

There are indeed concerns, including on the Ireland, whose note has again been damaged, or even on the United Kingdom and the United States who see their deficits to grow strongly. But it must also be remembered that these countries, and the Spain, leave a situation of debt relatively moderated. Their debt was less than 50 of the GDP, which gives them some margin of manoeuvre. Therefore, I think that it is not reasonable to consider the failure of a large country in the short term. It also notes that some States, who could doubt their ability to finance, markets have done well out: the Greece has recently sealed off his program of the year with success. Finally, I do not believe that we should still expect significant increases in funding programs, at least in Europe.

What then is you the main risk for the bond market

Inflation. But this threat is not news, even if the market has recently revised upward its expectations of rising prices. It was assumed from the bottom: it is a still a few months, prevailed in the United States a scenario of deflation for years. In my view, the recent change of expectations is reasonable, to the extent it remains in line with the objectives of the central banks: points killed inflation on French bonds reflected a rise in the price a little less than 2 in 10 years. This forecast does not argue for a next higher interest rates, which could hit the bond market, particularly on short maturities. I do no more to a monetary tightening in the United States by the end of the year.

In sum, the environment still seems you favourable to the bond

Yes. We are always in a disinflationary trend, and we rely on growth which will remain under its potential for some time, with unemployment on the rise. In this context, I think that rates of central banks will remain at low levels longer that believe the markets. The monetary authorities will remain expansionary in the medium term. In view of these elements, we find that mature titles short up to 2 years are interesting.

More generally, we prefer the debt of government bond well rated companies, as it provides attractive yields. Finally, even if we do not believe a next inflationary rebound, long term inflation-indexed bonds are we a good investment, despite the recent trend was observed for these titles.