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2010 Predictions: Interest Rates

Last year I was not making making predictions for 2009, mostly because my call for 2008 was ridiculously correct and I had nothing more to say.  But this year will be different and I’ll try to make some predictions. The most important point to stress for the coming year is that everything will depend on interest rates and more specifically on the yield on the 10 year treasury bonds. And the second point is that the treasury yield for this year is pretty much unpredictable. The reason for that is that if a selling panic develops it will be unstoppable. The corporations will issue enormous amounts of long-term bonds to fix the low rate before it’s gone and the incredible volume of new issues will tank the market. It is important to understand that this debt will come from companies that don’t really need any new money, they will sell bonds only to fix the rate, just in case. But those extra funds will sit in money market accounts without moving, keeping short term rates low but not helping the panic at the long end of the curve. Optimistic scenario The 10 year treasury yield will stay in the 3.5% – 4% most of […]

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