Resolution and conviction behind the policy effort to stabilize the eurozone's sovereign funding crisis are being clearly demonstrated. For a start, EU policy is now focusing on increasing the size of the European Financial Stability Facility and in today's Financial Times there is a discussion on E-bonds and the prospect of a European Debt Agency as the issuing agent.

Also, picking up on last week, the ECB's extension to April in its provision for liquidity was accompanied by a warning from Mr Trichet about how its bond buying operation would meet fire with fire in being 'commensurate with what we (i.e., the ECB) observe'. Investors felt the heat! In buying Irish and Portuguese sovereign debt, the ECB's contagion antidote left yields on Spanish and Italian debt lower too.

David Fuller's view Some selling of Euroland's troubled sovereign debt has been due to the liquidation of long positions by pension funds which do not have a mandate to hold issues which have been downgraded. However there has also been plenty of short selling from hedge funds and other speculators. It is this latter group that Mr Trichet will periodically squeeze, increasing their risks.

We have a very different situation in western long-dated government bonds where yields remain historically low. Here, there are far more talking than acting bears. Speculators have been cautious about shorting, despite historically low yields. They fear additional quantitative easing and know that the Fed has encouraged commercial banks to recapitalise via the yield curve.

This can lead to further ranging in a base building process for long-dated yields (early topping process for their respective futures contracts). However, yields cannot move significantly lower, as people once thought, if the US economy continues to show evidence of modest recovery.

The ranging activity near historically low yields is suitable for my Baby Steps sell-high-buy-low trading strategy in US 30-year Treasury Bond futures. The Fed's QE presumably reduces deflationary pressures and the central bank may not desist until it anticipates sustained CPI inflation above 2%. The strength of commodity prices could cause this to occur sooner than the Fed might expect or hope.

If so, as I suspect, the bond vigilantes will notice. The recapitalisation of commercial banks will eventually run its course, as will the Fed's QE programme. Historically low yields would then be in an inevitable process of upward mean reversion. Investors would reduce exposure to US Treasuries in favour of higher-yielding emerging (progressing) market debt, or equities, creating momentum moves.

Don't miss Mike Lenhoff's concluding paragraph, with which I concur.