Core European government bond yields continue to fall and are now outright negative in many countries. Traditionally, this would suggest a stern message from the fixed income market that deflation is around the corner.

But there could be other explanations.

Variant Perception’s  Editor Simon White was on Bloomberg Television Friday to talk about the funding needs of Spanish banks.    

The SNB lately reiterated its stance to maintain a EURCHF floor of 1.20. In the process, the SNB has amassed billions of foreign currency-denominated assets, about half of which is EUR, and certainly some of dubious quality (some of the recent moves tighter in French yields have been due to Swiss central bank buying, who have been deterred from channelling any further flows into short-term German bonds paying negative yields).

The Final Winner of the Wolfson Economics Prize was announced today. Congratulations to all for their efforts! Download our full report

Chinese reserve accumulation has slowed down rapidly. As a result the growth of foreign ownership in US treasuries (USTs) has fallen. The global liquidity pump of Bretton Woods II, in which pegging emerging markets are recycling their increase in foreign exchange reserves into US treasuries in order to keep their currencies stable against the USD, has slowed, but not stopped altogether.