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Politics : Idea Of The Day

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To: J.T. who wrote (16170)	1/7/1998 3:24:00 PM
From: Lee	Read Replies (1) of 50167

J.T. <<bond yield call backing up to 5.90% to 6.10% area>> Bond yield is currently at 5.793% and heading toward the 5.9 to 6% level as stated by Ike (IQ?). I think the equilibrium level is around 6.25% to 6.4% but can't back that up without a lot of work. If you've traded bonds though, you know that lots of stimuli cause the market to overshoot out of proportion to the actual data. It's like a spring mass system disturbance and after the initial movement, bonds eventually move back to small movements around an equilibrium level. I guess Greenspan mentioning deflation in his Sat. speech represented one of those disturbances. The reason I suspect that the equilibrium level is north of 6% is because data keep reflecting a very strong economy. Just today, new home sales for Nov. were up 5.6% to 830k. Also, GM and Toyota sales were very good. FWIW, the bond market seems to be very selective about eco data, but eventually either the data will finally be weak or the market will have to adjust. Mr. Greenspan did talk about asset price deflation but was careful to differentiate the circumstances in which that would occur. Lee

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