Despite signs that several segments of credit continue to improve, namely in the mortgage-backed and investment grade corporate bond market, the rest of the complex remains hostage to nervous money and the accelerated flight to safety in December.

U.S. Treasury bonds, the only asset in the world appreciating along with the dollar and the yen since mid-July, have skyrocketed in value since November 18. The yield on the benchmark 10-year Treasury now fetches just 2.54% -- the lowest yield since 1954.

As the credit markets continue to remain largely frozen to weaker credits, investors are starting to abandon the municipal bond market following several weeks of calm.

The municipal bond market in the United States is no slouch. Total outstanding supply stands at $2.7 trillion dollars with the Merrill Lynch Muni Master Index yielding 4.2% or an 8% taxable equivalent. That’s the highest yield in years for municipal bonds.

Since 2000, two important financial “bubbles” have popped. The seeds for the third such destruction are now in progress as government bonds in the United States and overseas skyrocket on deteriorating economic fundamentals. Government bonds love bad news as it suggests lower interest rates lie ahead to fuel an economic recovery thereby sending yields lower.

This decade has already witnessed the death of two asset class “bubbles,” both destroyed by either lax monetary policies or rising interest rates.

The United States is now waging an all-out war against clogged credit markets and attacking each troubled artery head on.

Earlier this week U.S. government officials announced a new plan to pump $800 billion dollars into the rapidly contracting economy by injecting funds into distressed credit markets where banks remain reluctant to lend and continue to hoard cash.

This year has been anything but sweet for commodities investors. Since peaking in mid-July, the Reuters-CRB Index has crashed a cumulative 48% with every constituent of the index down sharply – except sugar.

To be sure, another formidable commodity is also holding up relatively well in the Panic of 2008 -- gold. Though down 2% this year that’s far better than just about every other asset class where losses exceed 30%.

Sugar prices have rallied 11% in 2008 on the heels of growing supply shortages.

First it was the banks. Then Fannie Mae and Freddie Mac followed by AIG, Citigroup and now possibly auto companies, the home builders and the legacy airlines.

Increasingly, the American government is becoming Corporate America’s largest investor. And with that big shareholder responsibility comes a new wave of government regulation in 2009 as Congress moves to unseat greedy banking executives and curtail salaries and bonuses. More government won’t be good for business.

The Federal Reserve this morning announced new plans to unclog credit markets as the economic recession continues to deepen across the country, stifling bank lending and resulting in widespread hoarding of cash.