The Debts of the World: This Week's Bonds and Yen Movements

The last 2 days saw a brutal bond sell-off - particularly in the 10 and 30 year ranges. Interest rates are now back above 3% and 4% respectively.

So what does this mean for bond guru, Bill Gross, and his co. Pimco? Let's go back in time to March 20 to see what a Pimco M.D. (managing director - not physician) has to say:

DJ Pimco's McCulley:Fed Reserve Has Surrendered Its Independence

By Dan Molinski Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The Federal Reserve Board relinquished its independence from the U.S. government with its plan to effectively print money to buy U.S. debt, a managing director of the giant bond fund Pimco said Friday.

But Pacific Investment Management Company's Paul McCulley said during a speech in New York that he doesn't see this development as a bad thing, so long as it's temporary. In fact, he said the Fed's move might be the only way U.S. economy can stay out of the "Big D: Depression."

To be fair, Pimco has also been recommending TIPs (treasury inflation protected bonds). But anyone who remembers last spring's inflationary climb would do well to doubt the government's claims of inflation. The returns were not matching the real rate of inflation. Instead, nimble traders (aka bond vigilantes) unconstrained by conservative fund legal limits have been gleefully shorting US bonds of all stripes.

It is also worthwile to note this week's corresponding sell-off in the yen. I posted a few days ago about how the yen was looking overbought on the daily stochastics. Well, it looks like some traders believe we are entering a new period of inflation (the renewed "carry trade" label is a bit much for me considering Western funds are still in shell shock mode ). Keep in mind that Japanese ministers are due to make announcements tonight and later this week. So far, their track record has been singularly impressive in their commitment to debase the yen and return the country to its former export glory. The fact that none of their efforts have really worked for the past 20 years is but an inconsequential fact to Tokyo bureaucrats.