Pundits Calling for 10-Year Notes at 2.5%

Dawn Bennett of Bennett Financial Services recently appeared on Bloomberg and nonchalantly mentioned expectations of the 10-year note coming down to 2.25% in 2008. She also asserted that there was no inflation -- only phantom inflation. She used the ridiculous comparison of gas prices in the US to gas prices in the UK to illustrate this. (As an aside, my cost of healthcare benefits rises 15% next year).

Somehow, she manages $1B; I have no clue who would give someone like this a penny to manage. I can only hope that the market is as forgiving to me when I misstep.

Last week I mentioned Scott Minerd from Guggenheim also calling for 2.5% on the 10-year note, ostensibly to draw buyers back into the housing market. I wondered just how that was going to happen -- are there that many idiots in the markets and how have they managed not to lose all of their money?

Just about the only way I can see this happening is if the Fed comes into the market and starts buying the long end of the yield curve. I try not to get too distracted by interest rate noise so I don't know the historical context of such an action. But for some context, below is a graph of the 10-year note from Yahoo! going back to 2000. It seems the lowest the 10-year yield fell was to slightly above 3% -- a quick guess is that time also coincides with the start of the Iraqi escapade. Keep in mind, this is the same period that Greenspan cut short-term rates to 1% and kept them there. Also, note that it includes Sept 11, 2001 and the hysteria after it.

So again, just what will it take to get the market to buy the 10-year down to 2.5% or below while digesting...ahem..."phantom" inflation?

click to enlarge

Comments

[Guy1]

"It seems the lowest the 10-year yield fell was to slightly above 3%"

For the record I marked the 10 yr UST @ 3.07% interday on 06/13/2003. Close that day on Bloomberg was 3.10% for the then current 10 yr. The Fed's H15 records the bond @ 3.20%.

Regards,
Guy