How Memphis Firm Decoded Bond Secrets Mystifying Wall Street – Bloomberg 06-30-14

Salient to Investors:

Jim Vogel and Chris Low at  FTN Financial said:

  • Treasuries are years away from reverting to pre-financial crisis levels as growth remains weak and several hundred thousand people fall out of the labor force.
  • Yields will end 2014 at 2.55 percent versus the median estimate of 3.07 percent. Bloomberg show the consensus quarterly forecasts for 10-year yields made 12 months forward have overestimated yields by an average of 0.68 percent since January 2009.
  • Some of the growth we wish we could go back to was far more frail than most people realize.

Priscilla Hancock at JP Morgan Asset Mgmt expects the 10-year yield to end 2014 at 3 percent.

Jeffrey Gundlach at Doubleline Capital said the aging population, less spending, slower inflation and greater demand for low-risk, income-producing investments will keep yields low for years.

Jim Bianco at Bianco Research said traders are finding it too expensive to keep shorting bonds so are being forced to cover: he said growth is absent, and expects 10-year yields will fall to 2.25 percent in 2014. Bianco said the relationship between nominal growth and interest rates is not as strong as traders think it is.

Read the full article at http://www.bloomberg.com/news/2014-06-29/how-a-memphis-firm-decoded-bond-secrets-mystifying-wall-street.html

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