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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Giordano Bruno who wrote (279128)9/27/2010 7:41:20 PM
From: Les HRead Replies (1) of 306849
 
Fed Model for Treasuries Shows Diminishing Returns
By Susanne Walker and Anchalee Worrachate - Sep 27, 2010 10:18 AM ET

This year’s rally in Treasuries has pushed yields so low that a Federal Reserve measure of risk shows U.S. government securities are too expensive.

The financial model created by economists at the central bank that includes expectations for interest rates, growth and inflation shows Treasuries are the most overvalued since the financial crisis in December 2008, just before 10-year note yields almost doubled in the following six months. Investors who held 10-year notes through that period lost 13 percent, according to Bank of America Merrill Lynch index data.

The first round of quantitative easing lowered the 10-year yield between 50 and 60 basis points since November 2008, said Joseph Gagnon, a former Fed official who is a senior fellow at the Peterson Institute for International Economics in Washington. He estimated a second round would “likely be at least $1 trillion,” and have a smaller market reaction.

...

“If they do $1 trillion, the 10-year yield could move 10 to 20 basis points on top of what’s already been done,” Gagnon said. “If they don’t do it, yields will go back up.”

bloomberg.com
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