Morgan Stanley Forecasts 5.5% 10 Year Note as U.S. Faces Deficits

December 29, 2009 by · Leave a Comment
Filed under: Currency News 

There is a battle taking place right now between the bulls and bears.  At this point almost every analysis is extremely bullish on the growth prospects in the U.S. for 2010.  I have heard today alone for GDP estimates from 3.5 to 5.5% in 2010.  With 10% unemployment, I would be very surprise to see how we would produce those growth targets.

When I hear and read everyone staying the same predictions it makes me think it is now a good time to see if it would be beneficial to be on the opposite side of this trade.  Maybe shorting the 10 year bond is the move for 2010???

Bloomberg – If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.  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.

Investors are demanding higher returns on government debt, boosting rates this month by the most since January, on concern President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment.”

Yields on the 3.375 percent notes maturing in November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April 2004, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven.

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