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Further evidence the Euro scare is passing

This chart of 3-mo. T-bill yields is further evidence (in addition to the decline in swap spreads, credit spreads, and the Vix index) that the mini-panic over Eurozone debt defaults is passing. Such was the panic a week ago that investors were willing to sacrifice almost all yield in order to enjoy the safety of T-bills. Rising T-bill yields today are equivalent to the market breathing a huge sigh of relief.

As this chart of 10-yr Treasury yields shows, however, the market is still very concerned about the future of the U.S. economy. Investors are willing to accept 3.2% yields on 10-yr Treasuries only because they have a very dim view of the economy's ability to grow, and because they remain concerned about the threat of deflation. So between the two charts we see that while the market is no longer absolutely terrified of another financial meltdown, it is far from being optimistic about the future. Reading the bond market tea leaves is how I come to believe that valuations in the equity market remain relatively depressed.

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