China Complains of Trade Protectionism

Chinese exporters have undergone an increasingly unfavorable trade climate this year as trade protectionism and yuan appreciation pressure have been on the rise amid the global financial crisis.

The following are major relevant cases, quotes and figures:

-- On Dec. 22, the European Union (EU) made a decision to extend dumping duties on leather footwear from China for another 15 months.

-- On Dec. 21, Zhou Xiaoyan, a Chinese Ministry of Commerce official, said as of the end of November, 19 countries and regions have launched 103 trade remedy investigations against Chinese products. Both the number of the cases and the money involved hit record high.

-- On Nov. 29, Chinese Premier Wen Jiabao said in Nanjing when meeting with three Euro Group leaders that China had maintained the stability of the exchange rate of the currency yuan, making an important contribution to global financial stability and economic development.

Wen said China would continue to enhance the flexibility of the yuan exchange rate, acting on its own initiative and in a controllable and gradual manner, and keep it basically stable at reasonable, balanced levels.

-- On Nov. 24, the United States made a decision to impose duties ranging from 10.36 percent to 15.78 percent on Chinese oil well pipes for alleged unfair subsidies.

-- On Nov. 15, Nobel economics laureate and New York Times columnist Paul Krugman pushed for a stronger yuan in an article entitled "World Out of Balance". He wrote, "China's weak-currency policy siphoned much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters."

Shaun Rein, founder and managing director of the China Market Research Group, a strategic market intelligence firm, said revaluing the yuan right now would "jeopardize the world's fledgling economic recovery". Rein argued, "It is better for American businesses for China to maintain current yuan rates until the worldwide recovery is on a firmer footing."

He stated that if the yuan were to appreciate, billions of U.S. dollars of purchasing power would be taken from American consumers, which he said satirically would not make the upcoming holiday season "such merry time"

IMF Paper. Subsidies on Fuel Products are fiscally costly and socially regressive

A recent working paper of the IMF shows that many countries subsidize the consumption of fuels,however the study shows that fuel subsidies are fiscally costly and socially regressive.

At a global level, a major cross-country study by the IMF showed that fuel subsidies generally crowd out high priority public spending, like health, education and infrastructure. They also put pressure on current account deficits, distort productive investment toward energy-intensive sectors and technologies, and contribute to global warming. Fuel subsidies are the opposite of carbon taxes, after all. But the study also showed that fuel subsidies are regressive, meaning that they actually benefit the rich much more than the poor.

Averaged across a large number of low-and middle-income countries, the study found that the top 20% of households capture six times more in benefits from fuel subsidies than the poorest 20%. Why? Because upper income households consume a lot more fuel products than poor ones, especially gasoline, which is the most regressive fuel product to subsidize. The image of a millionaire zooming by in his big SUV comes to mind. By contrast kerosene, which poor families are more likely to consume, is the least regressive product to subsidize.

Recognizing that fuel subsidies were reaching the neighborhood of 2% of GDP, and  crowding out more productive public spending, India’s government has taken bold steps over the past nine months to reduce fuel subsidies. Diesel prices have systematically been rising, there are plans to cap the number of subsidized Liquefied Petroleum Gas cylinders per household, and state electricity boards have been encouraged to set more cost-reflective power tariffs. These measures are welcome, as they also help to take pressure off the worsening current account deficit.

But what less widely understood is that reducing fuel subsidies is a pro-poor measure. In per capita terms, the top 10% of Indian households spends more than 20 times as much on fuel as the poorest 10%.  This includes both direct and indirect consumption – the latter being when producers transport food to market, for example,   using subsidized fuel. Low-income households consume mainly kerosene, while upper income households predominantly use petrol and LPG. 

The bottom 40% of families could be fully compensated for the move to market prices for less than a fifth of what government now spends on fuel subsidies, leaving significant savings to invest in roads, schools, and hospitals.

India´s Reform on Energy

According to The WSJ , price controls and quasi monopoly of state-owned Coal India, has produced lower investment in the Energy Industry.
 As a result of that policies India´s economic growth fell to 5% in the year ended in March,nearly half the rate growth it was five years ago.
"A major blackout last summer deprived 600 million Indians of electricity for about 48 hours. Rolling outages are common. Peak-hour power demand outstripped supply by 8.7% for the 12 months that ended March. Power sector stocks have lost 18% in the past year, even as the broader market gained 10%"
 The immediate problem is inadequate supply of coal. More than half of India's electric power comes from coal, most of it supplied by state-owned Coal Company, but it hasn´t met the
growing demand in past years.

But the government's now is beginning to address these problems.

Last week, lawmakers said generators that have supply agreements with Coal India can reduce the amount of coal they buy from the state-owned miner to about 65% from 80% earlier, importing the difference. The government also said power generators can pass on the additional cost of imported coal to distributors.

Separately, power distributors owned by eight provincial governments have hiked end-consumer prices by up to 24% this year. This should help power generators sell more expensive power to distributors.

The power sector will attract more investment. In the year to March 31, investment in infrastructure like power grew at only 7.8%, half the average rate since 1991.

 The latest measures may signal New Delhi is willing to move further on power pricing reform,and the end of India´s power shortages.

China's Foreign Minister Wang Yi,countries seeking help from third parties, for their territorial claims in the South China Sea are doomed

Countries with territorial claims in the South China Sea that look for help from third parties will find their efforts "futile", China's Foreign Minister Wang Yi warned on Thursday, adding that the path of confrontation would be "doomed".

Beijing's assertion of sovereignty over a vast stretch of the South ChinaSea has set it directly against Vietnam and the Philippines, while Brunei, Taiwan and Malaysia also lay claim to other parts of the sea, making it Asia's biggest potential military troublespot.

At stake are potentially massive offshore oil reserves. The seas also lie on shipping lanes and fishing grounds.

Wang didn't name any third countries, but the United States is a close ally of Taiwan and the Philippines, and has good or improving relations with the other nations laying claim to all or part of the South China Sea.

"If certain claimant countries choose confrontation, that path will be doomed," Wang said after a speech at the annual Tsinghua World Peace Forum.

"If such countries try to reinforce their poorly grounded claims through the help of external forces, that will be futile and will eventually prove to be a strategic miscalculation not worth the effort."

Source: Reuters

China fights corruption

The National Audit Office (NAO) on Thursday said it has found that some state-owned financial institutions have violated lending regulations.

NAO said 27 branches of state-owned financial institutions provided loans worth a combined total of 28.44 billion yuan (4.6 billion U.S. dollars) for projects without proper procedures or necessary guarantee.

Nine branches charged extra fees totaling 421 million yuan for small business loans and export credit services, auditor general of NAO, Liu Jiayi, said in an auditing report presented to the country's top legislature.

Meanwhile, 18.39 billion yuan was embezzled by clients and 2.2 billion yuan was transferred to private financial markets for usurious loans, NAO said.

NAO said 22.03 billion yuan in illegal or embezzled loans has been retrieved and authorities have prosecuted 693 people in relation.

Source Xinhua

Transition from Easy Money to less Easy,is a matter of Communication to Calm Markets

The comments by Fed Chairman, that they will start to taper the accomodative monetary policy, has send bond markets in to a shock,and has affected negatively the bond of Governments,Corporate, and emerging market debt.
The key question for investors is to assess whether central banks have changed the way they react to incoming data, or whether the incoming data have changed. This is particularly difficult in an environment where unorthodox policies like quantitative easing have become prevalent.
The Bank of England's Financial Stability Report this week warned in two consecutive sentences of the risks arising both from sharply higher interest rates and an intensification of the search for yield that has driven rates down.
Fed Chairman Ben Bernanke has been at pains to argue that the shift in Fed thinking is down to a better economic outlook, but that monetary policy will remain extremely loose.
Economic data will be the determining factor. If the data suggest a sustainable, accelerating U.S. recovery, then it could be painful for fixed-income investors. The degree to which the Fed can secure the short end of the curve will be vital. But weaker data might not be a panacea either: It will test the Fed's ability to communicate how the longer-term outlook, and hence the policy reaction, is changing. Either way, volatility is likely to stay high.


Excerpts from the WSJ

Price of Bonds Stabilizing after GDP growth Data. And Fed Officials Speeches to Calm Markets.

U.S. Treasuries prices gained
on Thursday as bond markets showed signs of stabilizing after a
dramatic selloff and before the Treasury's auction of $29
billion of seven-year notes, the final sale of $99 billion in
new coupon-bearing supply this week.

Downward revisions to first quarter gross domestic product
data on Wednesday led some investors to speculate that a
pullback of stimulus may still be far away. Speeches from
Federal Reserve officials in recent days have also sought to
soothe the markets with statements that the removal of stimulus
is likely to be slow and depend on the strength or weakness of
data.

Source. Reuters

From WSJ. Bonds Quotes

  Goverment Bonds                                                         Change%    Yield

U.S. 3 Month			0/32	0.058
U.S. 2 Year			1/32	0.363
U.S. 5 Year			1 29/32	1.398
U.S. 10 Year			15/32	2.484
U.S. 30 Year			27/32	3.532
Germany 2 Year			1/32	0.194
Germany 10 Year			17/32	1.710
Italy 2 Year			15/32	2.271
Italy 10 Year			1 9/32	4.537
Japan 2 Year			0/32	0.141
Japan 10 Year			9/32	0.841
Spain 2 Year			6/32	2.214
Spain 10 Year			27/32	4.705
U.K. 2 Year			1/32	0.403
U.K. 10 Year			12/32	2.411

European Union. Investors and Wealthy Savers will share de cost of Future Bank failures.

The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.

After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros (84,998 pounds) should share the burden of saving a bank.

The deal is a boost for EU leaders, who meet later on Thursday in Brussels, and can show that they are finally getting to grips with the financial crisis that began in mid-2007 with the near collapse of Germany's IKB.

"For the first time, we agreed on a significant bail-in to shield taxpayers," said Dutch Finance Minister Jeroen Dijsselbloem, referring to the process in which shareholders and bondholders must bear the costs of restructuring first.

The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank's creditors.

"They can affect German savers just as well as they can affect any other investor in the world," German Finance Minister Wolfgang Schaeuble said after the meeting.

Taxpayers across much of Europe have had to pay for a series of deeply unpopular bank rescues since the financial crisis that spread across the bloc to threaten the future of the euro.

The European Union spent the equivalent of a third of its economic output on saving its banksbetween 2008 and 2011, using taxpayer cash but struggling to contain the crisis and - in the case of Ireland - almost bankrupting the country.

But a bailout of Cyprus in March that forced losses on depositors marked a harsher approach that can now, following Thursday's agreement, be replicated elsewhere.

From Xinhua. Short Term Pain vs Long Term Gain

An interbank liquidity crunch has made China's overextended commercial banks the first sector in the country to feel the pressure of the reform package initiated by the new leadership.

Despite the unusually-high interbank lending rates over the past two weeks, China's central bank, surprisingly, did not pump hefty amounts of money into the cash-thirsty market as expected in a bold but essential move to discipline unchecked lenders.

Such financial brinkmanship spooks investor confidence, sending the benchmark stock index into a tailspin to a four-year low this week. The panic, if unsoothed, may worsen the already slowing world's second largest economy.

It takes pains to get through the liquidity crunch, but it also paves way for future gains. For the blessing of a more sustainable economy, banks are the first, but certainly not the last to suffer the hardship.

The central bank has an arsenal of policy options at its disposal to ease the cash strains. It also pledges liquidity support to stem systemic risks if necessary. But its cautious attitude toward fueling another round of easy money is necessary to squeeze the bubbles and send the economic vessel onto a safer route.

While the stimulus helped lift China out of the shadow of recession, commercial banks, real estate developers and local governments used the package as a chance to start a credit binge over the past years. Sadly, a substantial amount of the money flowed into financial derivatives rather than the real economy.

According to Zhang Monan, a researcher with the State Information Center, the debt of enterprises was 122 percent of the country's GDP in 2012, hitting a 15-year high.

A great portion of the money was lent to state-backed large-scale projects with a long return cycle and short maturity date.

As a result, local government debts are spiralling up. Property prices have not been tamed. These unstable elements heighten the dangers of asset price bubbles and potentially defaults if loans turn sour.

It is time to deflate bubbles and restore normal practice.

The road-map is clear.

Analysts have lowered their forecasts of China's GDP growth for 2013. But the central authority has shown rare tolerance for slower growth rate in exchange for more sustainable and balanced development. It has the courage, as well as the ammunition to keep the situation within control.

If long-term gains can be secured, short-term pains will be worth it.

FTSE in positive territory at midday

UK markets were able to hang on to gains on Thursday morning on a busy day for economic data, as stocks continue to rebound after some heavy losses over the last month.

After hitting a fresh five-month low of 6,029 on Monday, the FTSE 100 has risen strongly over the past two sessions with bargain hunters stepping in, given that many have seen the index's recent sell-off - after coming within touching distance of its record closing high of 6,930 last month - as overdone.

Benchmarks in the States finished higher last night as markets reacted positively towards a downwards revision to US economic growth to 1.8% in the first quarter, down from the initial estimate of 2.4%. This sparked hopes that the Federal Reserve could potentially delay its decision to taper stimulus until growth shows more signs of improvement.

Supporting stocks this morning was the news that the initial estimate for UK economic growth in the first three months of 2013 was maintained at 0.3%. Meanwhile, revisions to historic estimates mean that the economy did not actually suffer a double-dip recession in the first quarter of 2012. 

It is a relatively busy day for economic data today, with markets this morning digesting a higher-than-expected drop in unemployment and a falling jobless rate in Germany, as well as mixed Eurozone consumer and business confidence figures.

Meanwhile, jobless claims, personal income/spending and pending home sales are all due out in the States later on.

Source: LiveCharts

Bill Gross Thoughts on Chairman Bernanke's plan to begin to taper bond purchases

By William H. Gross

 At his press conference last week, Fed Chairman Ben Bernanke said the central bank may begin to taper the monetary stimulus by tapering its asset purchases later this year and ending them in 2014.

We agree that QE must end. It has distorted incentives and inflated asset prices to artificial levels. But we think the Fed’s plan may be too hasty.

Fog may be obscuring the Fed’s view of the economy—in particular, the structural impediments that will inhibit its ability to achieve higher growth and inflation. Bernanke said the Fed expects the unemployment rate to fall to about 7% by the middle of next year. However, we think this is a long shot.

Bernanke’s remarks indicated that the Fed is taking a cyclical view of the economy. He blamed lower growth on fiscal austerity, for example, suggesting that should it be removed from the equation the economy would suddenly be growing at 3%. He similarly attributed rising housing prices to homeowners who simply like or anticipate higher home prices, as opposed to emphasizing the mortgage rate, which is really what provided the lift in the first place.

Our view of the economy places greater emphasis on structural factors. Wages continue to be dampened by globalization. Demographic trends, notably the aging of our society and the retirement of the Baby Boomers, will lead to a lower level of consumer demand. And then there’s the race against the machine; technology continues to eliminate jobs as opposed to provide them.

Bernanke made no mention of these factors, which we think are significant forces that will prevent unemployment from reaching the 7% threshold during the next year. Falling below  5% and 6% is an even more distant goal.

 Bernanke said the Fed sees inflation progressing toward its 2% objective “over time.” At the moment, we’re nowhere near that.

The Fed’s plan strikes us as a bit ironic, in fact, because Bernanke has long-standing and deep concerns about deflation. We’ve witnessed this in speeches going back five or 10 years—the “helicopter speech,” the references not only to the Depression but to the lost decades in Japan. He badly wants to avoid the mistake of premature tightening, as occurred disastrously in the 1930s. Indeed, on several occasions during his press conference, Bernanke conditioned his expectations of tapering on inflation moving back toward the Fed’s 2% objective.

We’re in a highly levered economy where households can’t afford to pay much more in interest expense. Monthly payments for a 30-year mortgage have jumped 20% to 25% since January. Mortgage originations have plummeted by 39% since early May.

High levels of leverage, both here and abroad, have made the global economy far more sensitive to interest rates. Whereas a decade or two ago the Fed could raise the fed funds rate by 500 basis points and expect the economy to slow, today if the Fed were to hike rates or taper suddenly, the economy couldn’t handle it.

It’s reasonable, of course, for Bernanke to try to prepare markets for the inevitable and necessary wind down of QE.But if he has to step back,the trust of markets and dampened volatility that has driven markets over the past two or three years could probably never be fully regained. 

From the WSJ. Sharp increases in long-term rates would affect US Economic recovery

Sharp increases in long-term interest rates, triggered by  Chairman Bernanke statements, threaten sales of homes, cars and other big-ticket items that have helped drive the U.S. economic recovery.
The U.S. economy grew at a 1.8% annualized rate in the first quarter this year after barely growing in the fourth quarter of 2012, . An important part of the growth was produced by spending on big-ticket consumer goods and home construction, both sensitive to interest rates. Taking away those two sectors, the economy grew at an anemic 0.9% in the first quarter and contracted in the final three months of 2012.
Higher rates reduce the appeal of mortgage refinancing, which helps households lower monthly payments. The Mortgage Bankers Association said Wednesday that applications to refinance mortgages decreased last week to their lowest level since November 2011.

Correction in bond prices, the Story Beforehand Told.

Excerpts of J.J Zhang article Bond bull is over and your choices are not pretty.Marketwatch
  
    The start of the  Fed´s tappering of the bond purchases on the following months, has brought
a sharp correction in the prices of bonds all around the world,and this will have an impact on the
wealth of many households. The smooth ending(or not) sooner or later of the accomodative monetary 
policies,  will bring a deep correction in the bond prices. There will be high volatility in this market,if the 
Fed steps back in,and return to ease money, there will be a pause.
   The longer the period with easy money,the deeper the mis allocation of resources,the  greater
the correction of these distortions.

"Allocating a significant portion of your assets to bonds, particularly U.S. Treasurys, and other stable income-based assets is one of the modern investing and portfolio(safe) practices.

There are reasons and times when bonds are a good idea and essential for balancing equity risks, but that time is not today.
 The 30-year bull market in bonds is almost over, if not already, and holding run-of-the-mill bonds today, particularly U.S. Treasurys, is a potential disaster in the making.
 In theory, bonds are very stable (barring bankruptcy), you pay a fixed par amount, you get regular interest payments and you eventually get your principle back at the end.

While this is true, this is not what normally happens for small investors today.

A careful distinction is that the vast majority of people are buying bond funds, not the actual underlying bonds. Like stock mutual funds or stock ETFs, bond funds are comprised of a large number of assets, in this case bonds, at varying maturities and types. When you buy a bond fund, you are buying a share of those assets.

While bonds have a set par or face value, they can trade at a premium or discount to it. As interest rates and yields change, because the yearly interest payment on a bond is fixed, the bond price has to adjust to make the bond competitive with new issues",(so it changes daily in a secondary market).

 The bonds are quoted at below, equal or above nominal face value. If you sell an investment in a

ETF of Bonds, or in a Mutual Fund of Bonds, part of the investment is going to be liquidated at

prices below face value and no interest gain,making a loss for individual investors, depending

on the average maturity of the bonds. The longer the maturity the greater the loss, the shorter the

maturity the lesser the loss.

President of Richmond Fed,Central Bank is not anywhere near Cutting size of its Balance Sheet

The president of the Richmond Fed, Jeffrey Lacker, said in an interview Wednesday that the market "got a little bit ahead" of the central bank in pricing in tapering of bond purchases. In an interview on Bloomberg Television, Lacker said the central bank is not "anywhere near" cutting the size of its balance sheet. 

Source Marketwatch

Sharp Turn on China's Central bank Policy

China's central bank took a sharp turn Tuesday evening, when it promised to inject money into a temporary liquidity shortage after rejecting banks' pleas for cash over the past two weeks.

The move has been interpreted as regulators' decision to end the credit crunch that caused interbank rates to surge to double digits and pounded the stock market into bearish territory.

The benchmark seven-day fixing repo dipped 78 base points to 7.22 percent as of 11:30 a.m. Wednesday, and the Shanghai Interbank Offered Rate (SHIBOR) overnight rate slid 18 base points to 5.55 percent at the same time. The SHIBOR overnight rate shot up to 25 percent last Thursday, when banks rushed to each other for money.

Another factor forcing the PBOC to dial back its tight liquidity stance was that the market reacted to regulators' call in a way that was the opposite of what regulators had hoped for. In desperate need of cash, banks rolled out massive wealth management products (WMPs) to attract deposits, and the yields of these investments grew much higher than previous ones, thus posing greater risks.

The central bank relented on its stance of a tightened credit crunch, as economists warned that a prolonged credit crunch would put the brakes on the economy, which is already facing mounting downward pressures.

Source:  Xinhua

Robert Mundell thoughts of Current Liquidity Crunch in China

 The current liquidity crunch in the Chinese financial market is not a crisis, but it is still a problem that could hamper economic growth, Nobel Prize-winning economist Robert Mundell said here Tuesday.

Mundell made the remarks when commenting on China's macro- economy on the sidelines of a forum held by the Universal Credit Rating Group (UCRG), a new credit rating firm jointly established by agencies from China, Russia and the United States.

Worries over a liquidity crunch have been raised as short-term interbank rates rocketed to unusually high levels during the past two weeks in China, causing the country's key stock index to dive more than 5 percent on Monday, the biggest daily loss in nearly four years.

However, Mundell warned that if the tight credit continues for a long time, it could lead to a crisis.

The credit crunch was a result of excessive lending in the past three years, as now the banks have to curb it, he said.

He said he was not sure about the credit crunch's impact on the country's economic growth in the second half of this year, but if that crunch continues, it could "definitely lower growth."

But maybe the government is willing to accept a lower growth if it gets enough debt reduced, he added, saying that a slowdown in growth is not an urgent problem for China.

From WSJ quotes of Government Bonds

 Government Bonds                                            Price Change     Yield %                        

U.S. 3 Month			-0/32	0.056
U.S. 2 Year			2/32	0.402
U.S. 5 Year			8/32	1.437
U.S. 10 Year			16/32	2.551
U.S. 30 Year			16/32	3.595
Germany 2 Year			2/32	0.215
Germany 10 Year			11/32	1.769
Italy 2 Year			12/32	2.480
Italy 10 Year			1 8/32	4.705
Japan 2 Year			0/32	0.146
Japan 10 Year			0/32	0.873
Spain 2 Year			10/32	2.332
Spain 10 Year			1 20/32	4.814
U.K. 2 Year			5/32	0.415
U.K. 10 Year			22/32	2.450

Quotes of Precious Metals

Quotes of precious metals futures 3 months:

Gold                       1231.97

Silver                         18.61

From Reuters: Europe's and China Central Banks moves to calm market fears

"World stocks and bonds had a second day of big gains on Wednesday, lifted by healthy U.S. data, moves by China to calm banking sector fears and supportive signals from Europe's central banks.

Markets from safe-haven U.S. Treasuries to riskier stocks and emerging market assets have dropped on worries about the impact of an end to the U.S. Federal Reserve's support program, and as signs emerged of a credit crunch in China.

After both the U.S. and Asia's main share and bond markets had risen overnight, Europe's investors shook off a shaky start to send the FTSEurofirst 300 .The index of top shares up more than 1 percent for a second day running.

Gold and silver, however, both slumped to near three-year lows as investors continued to dump assets used as a safety net in case central bank money printing went wrong or fuelled a spike in inflation.

Markets from safe-haven U.S. Treasuries to riskier stocks and emerging market assets have dropped on worries about the impact of an end to the U.S. Federal Reserve's support program, and as signs emerged of a credit crunch in China".

Bonds had a rebound today ,ease that it is difficult to say is going to last for a long time. Because of the size

of the bond market we could say that lots of volatility and turmoil lies ahead,in the process to adjust portfolios

into a new scenario of higher interest rates,

"As new data showed Europe's economy remains in the doldrums, the region's policymakers were again out in force to try and calm any market jitters.

Both the European Central Bank and Bank of England said on Tuesday that, unlike the Fed, they remained in full support mode.

Bank for International Settlements General Manager Jaime Caruana also told Reuters in an interview the BIS was not demanding immediate action on global exiting and that the timing of an exit had to be determined by each central bank individually.

The annual report from the BIS - known as "the central banks' central bank" - provoked a storm of response at the weekend after saying an exit from accommodative policies would only become harder over time.(See previous post in this Blog)

Draghi's comments helped pushed the euro to a three-week low of $1.3035 against a broadly stronger dollar .DXY and helped trim yields on the peripheral-economy euro zone bonds which have jumped by more than half a percent over recent weeks.

Spanish 10-year yields dropped 16 basis points to 4.88 percent while equivalent Italian yields were 14 bps lower at 4.74 percent".

US Bond Market Size and the Change of its Composition 2008 vs 2011 Source: Learn Bonds

US Bond Market Size

1980 – $2.54 Trillion
1990 – $7.66 Trillion
2000 – $16.96 Trillion
2010 – $36.52 Trillion
2012 (Q2) – $37.46 Trillion

The composition of the bond market since 1980 has also changed substantially.  Since 1980, the popularity of large time deposits (essentially CDs) and commercial paper has declined dramatically, from over 30% of total bond market, to under 10%.

Mortgage related bonds (MBS, CMOs) on the other hand, have increased from under 5% in 1980 to over 20%.