Stocks closed in the red as mixed headlines continue to come out of Europe with the S&P stock index closing 2% lower as Treasury bonds rallied.
In a continuation of last week's trend, however, corporate credit spreads continued to trade relatively firm.
The strength of the bond market became apparent with how well primary bond issues were received and the continuing investor demand for new issue bonds.
Citigroup launched a $1 billion 10 year bond deal and Goldman Sachs re-tapped their 10 year bond facility for an additional $1 billion.
Royal Bank of Canada sold $2 billion total in a two-part offering: $1.25 billion of 3 year fixed rate bonds and $750 million of 3 year FRN (floating rate note) bonds.
That the market eagerly absorbed these deals tells us two things: 1) there is a lot of cash sitting on the sidelines waiting to be deployed, and 2) risk-on sentiment is back in credit and it could carry through until year-end (barring any major hiccups).
Most of the action seems to be concentrated in primary new bond issues with the lag between on-the-run recently issued bonds and off-the-run existing bonds for the same issuer continuing to grow.
There is also a dislocation between Euro-denominated and USD-denominated bond issues for the same issuers i.e. bonds for U.S. banks trade tighter denominated in USD than they do denominated in Euros.
So now that risk appetite is back in the bond markets does that bode well for the economy?
If consumer confidence numbers are any guide, the answer is no.
Main Street continues to feel the pinch with unemployment still a concern for most Americans.
As Dallas Fed Chief Richard Fisher summed up in an address to the Dallas Friday Group, the onus is on policy-makers and politicians.
Politicians need to rise up above parochial November concerns and become more creative.
Texas Governor Rick Perry's flat-tax proposal is a great start, coming on the heels of Herman Cain's 9-9-9 plan.
That Herman Cain has elevated himself from virtual unknown to someone talked about on the talk-show circuit illustrates the main concern for voters this election season: the economy and fiscal concerns like onerous taxation and regulation.
Fortunately, we still have a year until the elections and so the competitive process should bring out the best in each candidate.
Unfortunately, a year is a long time and election year gridlock can slow down the implementation of any creative ideas.
In Europe, the story of gridlock is not foreign.