Sunday, May 16, 2010

"Mea Culpa" from Morgan Stanley on Rising Treasury Yield Call

Treasury yields are sinking again this weekend, after a huge rally over the past few weeks. This prompted a "Mea Culpa" from James Caron, global head of interest-rate strategy at Morgan Stanley.

Please consider Bond Bears Reverse Rate Forecasts on Dollar Demand.
�This is a mea culpa from me on our rate call,� James Caron, global head of interest-rate strategy at Morgan Stanley, wrote at the start of a May 13 report. The New York-based firm, the most pessimistic among the Fed�s 18 primary dealers, reduced its year-end 10-year note yield forecast to 4.5 percent from 5.5 percent. �We did not appropriately discount the sovereign risk conditions which have contributed to keeping yields low.�

Treasuries, the benchmark for everything from corporate bonds to mortgage rates, have returned 3.4 percent since December, including reinvested interest, the most at this point in a year since gaining 8.48 percent in 1995, according to Bank of America Merrill Lynch indexes.

�The issue with this big bailout package is it probably stabilizes things in the short run but doesn�t address the root causes of the problem,� said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. �These countries are going to have to get their fiscal houses in order, and if they don�t, given the mechanisms that have been put into place, it creates an unsustainable situation.�
Yield Curve as of 2010-05-16



Forgive me for asking but I have a few questions:

1. Shouldn't treasury yields be rising in a recovery?
2. Is this representative of all the hyperinflationist talk we have been seeing?
3. Are short term rates at .14% remotely synonymous with hyperinflation or even inflation?
4. Same question as above except for 10-year yields at 3.41%

The "Mea Culpa" from James Caron is admirable. Now, where the hell is the "Mea Culpa" from hyperinflationist clowns preaching hyperinflation for the last 10 years?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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