Germany digs its heels in and the European Union's odyssey with Greece continues but it's all a side show for equity markets which have been moving to new post March '09 highs, a feature not only associated primarily with developed markets but also one that is not just down to the US. The FTSE 100 and, depending on your choice of index, Europe ex UK have climbed to new highs too. Of the bigger markets Japan remains the laggard. It has rallied along with the majors but has failed to participate in the move to new post March '09 highs.

One among several reasons why equity markets are doing well may be down to the government bond markets, which are behaving rather better than might have been imagined. This is considering the recovery coming through in the global economy and concerns by some about inflation or inflation expectations as implied by the 'break-evens'. Not even talk about central bank exit strategies or indeed the tightening now under way in the Asia-Pacific (ex Japan) economy is unsettling the bond markets. Nor are they disturbed by the warnings from the credit rating agencies, the most recent of which came from Moody's last week when it said that the US and the UK had moved substantially closer to losing their AAA credit ratings. This was for reasons to do with the cost of servicing their debt. But who cared? US Treasuries and gilts were not the slightest bit fazed.

David Fuller's view I believe that is it is not a question of will long-dated bond yields rise? Instead, it is a question of when will they rise?

The answer to these questions are in the hands of governments via their own purchases of their massive national debt, and also in the hands of bond vigilantes. Governments have already pointed out that they will scale back on purchases, perhaps in the not too distant future. Bond vigilantes are presumably pondering these questions: 1) Which are the least awful bond markets and, 2) Would I rather be in equities?

Today, some bond investors are voting with their feet, judging from these downward dynamics for US 30-Year Treasuries and UK 10-Year Gilts. Closes above the very recent highs are now required to offset further tests of prior support levels.

Here is last week's letter by Mike Lenhoff, which showed good timing.