Economist Interest Rate Projections

Below we highlight average estimates for the 10-Year Treasury Yield and the Fed Funds Rate going out to Q1 '10 based on Bloomberg's survey of more than 50 economists.  As shown, economists are expecting the 10-Year Yield to increase steadily in 2009, while they don't expect the Fed Funds Rate to move back up to 50 bps until the third quarter.  By the first quarter of 2010, economists expect the Fed Funds Rate to be back up to 1.00%.  It's hard to find an economist or analyst on the street that doesn't think Treasuries will fall after the gains they've had in recent months.  However, just like oil's rally from $110 to $120 to $140, asset classes can move in one direction a lot more than most people expect.

   

Comments

[dj]

Q3 tnt at 3%,Economist fig. a run on the dollar?

[San Fran Sam]

Maybe my math is crude. and someone can provide a better back of the envelope formula but...

If a note has 2.05 coupon and is selling at par, ie 100, to ge me a 2.05% yield. then if the yield goes up to 3%, then that same note withe same 2.05 coupon must drop to 68 to yield 3%. For a loss of 32% on the cost of the note.

Sounds like a good return for a short T-bond ETF.

[Good News Economist]

Did the consensus get rates right last year? Let’s just say the *majority* did NOT. Why? Because the “majority is always wrong.” It’s the famous quote from John Kenneth Galbraith, economic adviser to JFK and others… a famous Keynesian…

Here the concept is applied to 1975 market conditions:
http://mast-economy.blogspot.com/2008/12/remembering-1975-majority-was-wrong.html

But I’d argue that you could also apply it to the majority of “experts” last year.

I’d also argue that you can apply it today. Given most of what I read currently, the consensus is more gloom for 2009 and “the worst is yet to come” mantra.

I believe the majority is wrong again this year. And I think Galbraith would agree.

[John Adams]

As of today 4/02/09 I see this thing starting to bottom out, and it may pick up steam sooner than anticipated, say by the last quarter.