Fear has become the new normal

Europe came back online after the holidays with European worries front and center.
Stocks sold off aggressively with the S&P stock index almost 2% lower.
What's most telling is that yields on the 10 year Treasury benchmark bond dipped below the 2% level as investors flocked to the safe harbor of U.S. government paper.
The U.S. dollar gained to close at 1.3 against the Euro.
The bid for U.S. Treasuries (and German bunds) inversely tracked the sell-off in Spanish and Italian bonds.
Spanish bond yields approached the 6% threshold while Italian government bond yields closed above 5.6%.
Corporate and financial bonds traded very weak with higher beta names in financials back out at the recent wide levels.
For example, the Goldman Sachs 5 ¾ of 2022 bonds (a bellwether for the overall bond markets) traded as tight as 285 basis points in March but they are now in the 370 bp context.
On the primary new issue bond side, new deals (i.e. today's Kroger deal) saw their books (an indication of investor demand) build very slowly.
From a sentiment standpoint, robust 1st quarter 2012 U.S. financial earnings could quell fears about the domestic economy and lead to some additional bond supply.
But a further flare-up in Euro-zone concerns will trump all other considerations.
Ever since the spring / summer of 2011, fear has become the new normal, with patches of relative stability sprinkled in between.
The NFIB Small Business Optimism survey recorded the first decline since August although the verdict is still out on the direction of the domestic economy.
Alcoa earnings beat estimates with forward guidance also fairly upbeat.
In politics, former Senator Rick Santorum dropped out of the race for the Republican Party's Presidential nomination.
It is now almost a certainty that Mitt Romney will clinch the Republican nomination.
In China, Bo Xilai, a regional political chieftain, was suspended from his posts in the Communist Party in the latest chapter of an internal leadership struggle.
The Fed's beige book is out on Wednesday.