Sam, I may have implied that a recession is required to get such low yields, what I meant to say is that in our current economic situation, going that low will require a change in the "accepted" thinking, which could be induced in a recession. If we start to grow at 3% or more again, even without inflation, the fear of inflation coupled with demand on available funds (needed to finance the growth) will prevent the rates from falling. If we get a recession, the demand for funds will decline the deflationary pressures from Asia will keep inflation in check thus allowing for rates to fall.
The excess liquidity created by the Japanese "big Bang" and our own budget surplus will contribute to pressure on rates as well. On the other hand, if the current bear market in equities brings us down to the low 6000 on the Dow in the next six month and bonds are below 5%, a case for funds stating to move back into equities could be made, thus keeping the bond rates from going to low, IMHO.
Zeev |
