by Calculated Risk on 12/28/2009 10:46:00 AM
Monday, December 28, 2009
Here are a couple of stories with very different views ...
From Bloomberg: Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits (ht Bob_in_MA)
Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.And the LA Times has comments from PIMCO's El Erian (Update: the article is not clear when El Erian made these comments, but the article is dated Dec 27, 2009):
El-Erian says people are fooling themselves if they think all the bullish data of late means a strong recovery is in the offing. So he's buying Treasurys and selling riskier stuff.Earlier Greenlaw argued that the Fed would start raising rates in the 2nd half of 2010 because of rising inflation, even with a fairly weak economy. I think it is unlikely that the Fed will raise rates in 2010 (although possible) - and I'll definitely take the under on Greenlaw's 2010 prediction of 7.5%+ rates on 30-year fixed mortgages - that seems extremely unlikely.
His bet: Investors will get scared again and want U.S.-guaranteed debt so they know they'll get repaid.
Posted by Calculated Risk on 12/28/2009 10:46:00 AM