Morgan Stanley Economist Sees Yields Surging in 2010
David Greenlaw, chief fixed-income economist at Morgan Stanley is forecasting that yields on benchmark 10-year notes will grow by 40 percent in 2010 to 5.5 percent, according to a report from Bloomberg. This would mark the biggest annual increase since 1999.
Greenlaw also added that this jump will push 30-year fixed mortgage interest rates to 7.5 percent to 8 percent.
Demands are coming from investors to the government for higher returns on debt. President Barack Obama's stimulus packages aimed at restoring the financial system have kept the national deficit at $1 trillion. The restricted borrowing costs are putting the recovery from the recession in danger.
"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 with Bloomberg. "Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment."
Giving more weight to the latest forecasts is the market consensus that 10-year notes will end 2010 a 3.97 percent, according to 60 estimates from a Bloomberg News survey.
Short sales, where investors borrow securities and then sell with the hope to return a profit by repurchasing them later at a lower price and then return them to the holder. Currently the speculative short positions on the 10-year notes outnumber the long positions by 52,781 contracts on the Chicago Board of Trade. This is the largest disparity since October 2008.
Economist for Goldman Sachs, Edward McKelvey, is forecasting a drop to 3.25 percent for yields on the 10-year note. Goldman is projecting an unemployment rate of 10.3 in 2010 to hinder the economy and drop the yield.
The yield on the 10-year bond is at 3.81, up 0.06 percent in late market trading.
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