More on Sovereign Debt

MoneyWeek is advising people to start selling government bonds. I'm not sure I agree, but here's their thought process.

American bonds "have garbage fundamentals", says Dyson, "the US Treasury's about to flood the market with supply. As well as increasing the size of its bond auctions, it has also upped the frequency from eight times a year to 12".

We're talking vast numbers here, as not just the Americans need to raise loads of cash. The US alone is expected to issue $2trn (£1.3trn) of debt this year, says the Telegraph's Ambrose Evans-Pritchard, and the Europeans aren't far behind. "Italy alone must tap the markets for €200bn as it rolls over its huge stock of public debt". Further, ratings agency Fitch has said that Ireland, Greece, Holland and France all face big auction programmes.

And as for gilts, don't ask. Fitch says Britain has a "terrible underlying fiscal picture, by far the worst" of the mainstream countries. That adds up to £145bn of debt – 10% of GDP – just in 2009 ...

This week, even Germany only managed to sell just two-thirds of a €6bn sale of ten-year Bunds, whose yield has plunged to long-term lows of some 3%. "It's very poor", says Monument Securities' Marc Ostwald, "I can't remember the Bundesbank ever being left with a third of the bonds". Nor is confidence likely to be much improved by yesterday's news that the German government is being forced to shell out another €10bn on a second Commerzbank bailout in less than three months.

Ouch.