Fear Trade.

From "Market Watch" yesterday:

Does it seem like there was some kind of fundamental shift in investor perceptions last week, after S&P warned the UK about its finances (and, some felt, by extension, the US), or were investors just taking some profits off the table while the so-called fear trade was unwinding?
That’s the dilemma for investors right now. And given everything that’s happened the last two years, it’s not a question to be taken lightly. (We’re not financial advisers, but if you’re waiting to see how low rates will get before refinancing, now might not be the worst time to pull that trigger.)
Some are attributing the rise in bond yields and drop in the dollar as an unwinding of the risk trade, but something else might be at work.“That might have been the right spin in the past,” says market strategist Ed Yardeni. “However, could it be that the riskier assets have become the sovereign debts and currencies of Old World nations running excessively high government deficits?” (Yardeni includes the US in his definition of the “Old World,” which contrasts with the developing nations he calls the “New World.”)
He notes the administration may be getting the picture. White House budget director Peter Orszag told the FT the government will take steps to curb deficits and explore “policy adjustments.”
“They better start exploring faster,” Yardeni says. But, as with every question that crops up in the marketplace, there are other answers.
“I think a large portion of the rise in rates is result of the unwinding of the fear trade,” says Kent Engelke, chief economic strategist of Capitol Securities Management. Engelke doesn’t see the US losing its triple-A rating “for the simple it is not only the primary global benchmark but also the default benchmark. Competition or alternatives are nonexistent.”

Link: http://markettalk.newswires-americas.com/?p=2150#more-2150