Seoul, Seoul -- (SBWIRE) -- 10/21/2010 -- The major government bond markets have made further significant gains over the past month, despite the massive fiscal deficits around the world, and the renewed concerns about the possibility of sovereign debt defaults in Europe.

The lack of more positive measures initially caused some disappointment; but the policy change has already been implemented, and although it is still on a fairly small scale, it has helped to push Treasury bond yields lower.

Strathclyde Associates Korea Government Bonds Part2: The major bond markets in mainland Europe have also moved higher over the past month. There has been an improvement in the economic background in the euro-zone, but not enough to put pressure on the bond markets; and the European Central Bank has left short-term interest rates unchanged, despite its optimism about prospects. But there have been renewed concerns about the possibility of sovereign debt defaults, especially by Greece and Ireland, and so, in all the circumstances, the strength of most of the bond markets is surprising.

The flow of evidence on the performance of the eurozone has been much more encouraging; overall growth in the second quarter of the year is estimated to have been around 1%, after the disappointing result in the first three months of the year, and this has eased fears about a possible move into a “doubledip” recession. But is has been a two-speed recovery, heavily dependent on the performance of German exporting companies.

Strathclyde Associates Korea Government Bonds Part2: The German economy is estimated to have grown by 2.2% during the quarter, and this helped to produce reasonable growth in France and in the Netherlands; but there was no real growth in Spain and Portugal, and Greece slipped further into recession.

Overall domestic demand remains weak, and is likely to be further depressed by the austerity measures that are being introduced to reduce the fiscal deficits; and so it is crucial that overseas demand remains buoyant if the general improvement in the euro-zone economy is to be maintained.

The European Central Bank is continuing to take an optimistic view of prospects; but it has at least maintained short-term rates at low levels, and has provided modest support in the weaker bond markets. But it is clear that the sovereign debt crisis is far from being resolved.

Strathclyde Associates Korea Government Bonds Part2: There are fears that the deep recession that is developing in Greece will make it impossible for the government to sustain the austerity measures that are a condition of international help, and that the country will be unable to avoid a default on its debts, and may even be forced to withdraw from the single currency system, at least on a temporary basis; and the downgrade in Ireland’s credit rating by Standard and Poors, and the widening of yield spreads between German and Irish bonds, is a clear indication that there are doubts about the strength of Irish banks, and therefore the reliability of the country’s sovereign debts.