Essay About Per Cent And 10-Year Yields

All Hail Liquidity
The year 2012 has gotten off to a great start,
with risk back on with a vengeance. Global
equity markets are up across the board, and
suddenly everything once again looks right with the
world. In the US, the S&P 500 is off to its best start
since 1987, and is being led by deep cyclicals (materials,
home-builders, semiconductors) and financials.
The worst-performing stocks and sectors of
2011 are clearly leading the way (in the US, the 50
worst-performing stocks of 2011 are up 10 per cent in
the year to date, while the 50 best-performing stocks
of 2011 are only up 2 per cent). Bonds in the US are off
to their weakest start since 2003, with 10-year yields
back above 2 per cent. The S&P 500 is now up 20 per
cent from its early October lows, and is just about 3
per cent below its April 2011 post-crisis high. This pattern
is repeated across markets, with large emerging
markets leading the way.
Why has this rally taken shape? How much further
can it go? Is India, one of the best performers this
year, truly out of the woods?
The sources of this rally are ample liquidity, better
short-term economic data and some of the more
dire EU scenarios no longer being on the table.
The move by European Central Bank President
Mario Draghi last month to provide huge amounts
($635 billion) of low-cost three-year funding to the EU
banking system will clearly help banks de-leverage,
and also provide indirect support to the EU sovereign
debt markets. Investors have clearly taken time to
understand how significant this move was. There is
another round of such provisioning in February, and
it could turn out to be even larger than last month’s.
The ECB