A result was a widening of spreads, a reduction in liquidity and an increase in volatility.
"It's true that you have a widening of spreads of French bonds over German bonds, but you have also a widening of spreads of Dutch bonds over German bonds, of Austrian bonds and Finnish bonds over German bonds," Mr. Mills said.
Many advisers are becoming interested in high-yield bonds, where the drastic widening of spreads is painting an economic picture worse than many economists are projecting.
"Anecdotally one sees that when there is a Spanish holiday [and no Spanish bond-buyers] there is a widening of spreads," says one investor.
The widening of spreads has made the reward potential of high-quality corporate bonds "amazing," Mr. Swaffield said, although he finds the opportunities available in high yield even more so.
Since late last year investors have, for the first time since the second world war, become acutely conscious of credit risk hence the widening of spreads.Hence too, the huge increase in activity in Japan's default-swap market.
But that does not seem to be happening either.A further complication is the widening of spreads between government and corporate bonds, which has more than offset the drops in government bond yields.
In its latest "International Banking and Financial Markets Development," the Bank for International Settlements comments: "An extraordinary widening of spreads on U.S. dollar and sterling interest rate swaps was perhaps the most striking market development during the third quarter.
The Fed's action represents a widening of the spread between the discount rate and the upper end of the target fed funds rate.
"What I see now, week after week, in parliament is a widening of the spread of this attitude...The degree of impatience-cum-hostility to the EU, to the ECB and to Germany is mounting".
Indeed, fears have been expressed that the start of what financiers call "adverse debt dynamics" can already be discerned in a sharp widening of the spread (the difference in yields) between the ten-year German bund and its Italian equivalent.
