European bond markets sold off sharply on Tuesday. The selling started in the UK following the announcement of a general election to be held May 6. Ten-year notes ticked up 6bp to 3.983%.

Greek bonds weakened. The 10-year note rose 23bp to 6.772%. There is a new controversy brewing concerning Greek bond rates. Most of the European Union nations agree to let Greece issue bonds in the 4% range. Germany, however, is playing hard ball and wants Greece to pay up to more than 6%. The Germans say that Greece must pay for its excesses.

There's bad news and good news regarding Bill Gross's latest assessment of global credit markets.

The bad news is that Gross, who heads the world's largest mutual fund at PIMCO, said government bailouts point to a global "unicredit" bond market in which sovereign debt rates mirror those for corporations, Bloomberg News reported Monday.

First of all what is sovereign debt? Sovereign debt is created by the issuance of bonds by a country's government. When the financial meltdown occurred last year, governments around the world issued bonds to obtain money for their respective stimulus programs. The amount of debt (bonds) issued worldwide has been astronomical.

Now, investors around the world are worried that some countries are in danger of their bond markets collapsing or, worse case scenario, for the country to default on its bonds.

The catastrophe bond market is still running strong. This alternative to reinsurance, in which insurers can package up their risk and sell it to investors, may be a small part of the market, but carriers are clearly committing to it.

Swiss Re (SWCEY) and Scor (SCRYY) both have launched cat bonds, for $150 million and $75 million, respectively. This brings the fourth quarter issuance total to $840 million and the 2009 year-to-date tally to just over $2.6 billion, based on information from Artemis.bm and Guy Carpenter's GC Capital Ideas.

It was, of course, the late U.S. Senator Everett Dirksen, R-Illinois, who said, "A billion here, a billion there, and pretty soon you're talking about real money."

Well, given globalization and the passage of time, maybe we should amend that to 'a $100 billion here, a $100 billion there'.

The U.S. Treasury's $700 billion bail-out intended to stabilize the financial markets could take an already high U.S. Government budget deficit to truly astronomical -- and some say unsupportable -- levels.

The deficit, which the Congressional Budget Office in its most recent forecast (pdf) said will total $407 billion in Fiscal 2008 and $438 billion in Fiscal 2009, could exceed $1 trillion next year, if U.S. Treasury Secretary Henry Paulson's plan is passed as outlined, says economist Richard Felson.

In additional, the national debt -- the deficit accumulated over the decades -- would rise above $11 trillion.

"The calculation is based on a majority of distressed assets being recorded in the next year, and Congress probably will authorize the U.S. Treasury to do that," Felson said. "If the asset purchases are spread out, next year's deficit would be about $750 billion or $800 billion, but these are still enormous sums, effectively doubling the budget deficit."

A new survey has found that the percentage of economists forecasting a recession has more than doubled, Bloomberg News reported Monday.

The National Association for Business Economics' survey of 49 economists done January 29-February 13 found that 45%, a majority, expected the downturn to be relatively muted, up from less than 20% during a previous poll in November. The economists surveyed expect the U.S. economy to grow 1.8% in 2008, down from 2.6% in the previous survey.

Economist Steve Affinito, who was not a part of the survey, told BloggingStocks Monday the more somber view of is not a positive sign for the U.S. economy.

"Economists tend to be pretty cautious with their forecasts and projections, I can speak from personal experience with that, so the fact that the statistic doubled is an eye opener," Affinito said. "The economy has several large, formidable hurdles to mount in this economic cycle, so it's understandable why economists are taking a more-reserved view."

The U.S. Federal Reserve said it will conduct biweekly emergency auctions of loans "for as long as necessary" as part of a coordinated effort among the world's major central banks to provide liquidity to head off a potential, future credit crunch, the Fed announced Friday in a statement.

The Fed said: "The Federal Reserve intends to conduct biweekly Term Auction Facility (TAF) auctions for as long as necessary to address elevated pressures in short-term funding markets. The Board of Governors will announce the sizes of the January 14 and January 28 TAF auctions at noon on January 4."

To date, the Fed, in conjunction with the European Central Bank, has loaned more than $40 billion in 35-day loans in two auctions at interest rates of 4.65% and 4.67% per auction, respectively, Bloomberg News reported Friday.