Us and Them

The European session has pushed the US circus act into ring two this morning. The Bond Vigilantes are alive and well and rough riding allover the BTP. German Bunds continue to anchor the "quality" side of what appears to be capital flight concentration in the EU.

The US situation is a self inflicted wound. The Nattering Na-Bobs were quick to grade the 5 year auction a C- on a 2bp tail. The real take away is the incredible lack of liquidity in the complex given the constant drum beat of supply. A sloppy placement of real magnitude looks to be on the horizon but not the 7 year today.

The key distinction, for all the ugly politics here, remains refunding over rescheduling. The measures of the ECB and EFSF are merely precursors to an eventual default/reschedule. Greece has played the game wisely, go big and go early. The US should be utilizing the chaos to refund as much term debt as possible, as smoothly as possible.

Finally, the cognoscenti continue to be of the view that a move to AA in the US is a non-event. The short lived spikes in Japan dominate the data. Upon closer review the debt of Portugal, Ireland and Greece also conform to the SHORT time frame concept of post-downgrade stability. No one can argue that downgrades didn't matter, or came to late, in those countries now.

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