First, the ECB s renewed bond purchases must express the clear intention of reducing sovereign interest rates to sustainable levels, which are at least 200 basis points below their July averages. A high level German diplomat reportedly dismissed Spain s 6.5 7 interest rates recently, on the grounds that Spain borrowed at nearly the same rates in the 1990 s.

Noting the increasing voluntary use of collective action clauses in sovereign bond contracts by both developing and developed countries,

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Italian bond rates had already been falling before ECB President Mario Draghi announced the conditional bond buying plans. That reflected the substantial progress Italian Prime Minister Mario Monti s government had already made.

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Last year, the eurozone was on the verge of a double dip recession. When it recently fell into technical deflation, the European Central Bank finally pulled the trigger on aggressive easing and launched a combination of quantitative easing (including sovereign bond purchases) and negative policy rates.

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In 1994, rising short term rates caused increases in long term rates and declines in long term bond prices that were at least double what standard models at the time were predicting. Moreover, interest rates in the world's peripheral, developing economies rose far more than rates in the advanced industrial core.

That is likely to be a money losing strategy unless an investor is sagacious or lucky enough to sell the bond before interest rates rise. If not, the loss in the price of the bond would more than wipe out the extra interest that he earned, even if rates remain unchanged for five years.

Under the OMT program, the ECB can replace foreign outflows from sovereign bond markets through direct purchases, putting Spain on par with non eurozone countries like the United Kingdom. And, to the extent that there is even an informal price target associated with the ECB s commitment to purchase bonds, foreign outflows, at least from the sovereign bond market, are automatically replaced, in full, with ECB cash.

Though interest rates across the European Union are at historic lows, government debt in the eurozone could come under severe pressure should bond markets re evaluate the riskiness of sovereign borrowers. That is a consideration that should weigh heavily on indebted governments as they submit their budgets for scrutiny to the European Commission.

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Third, Germany s long term interest rates would be unaffected, because Germany would neither be guaranteeing the debt conversion scheme nor backing the ECB s bond issues.

Thus, the recent problems faced by Greece are only the tip of a sovereign debt iceberg in many advanced economies (and a smaller number of emerging markets). Bond market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.

LONDON In 2011, the Nobel laureate economist Paul Krugman characterized conservative discourse on budget deficits in terms of bond vigilantes and the confidence fairy. Unless governments cut their deficits, the bond vigilantes will put the screws to them by forcing up interest rates.

One could emulate J.P. Morgan, whose standard response to questions about stock prices, bond prices, and interest rates was to say simply, The market will fluctuate.

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Bond has arrived. Bond is here. All staff on the alert.