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To: Chip McVickar who wrote (2037)	8/10/1999 8:56:00 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 3536

A move to 7% seems ridiculous. Not if Greenie, the Meanie, in a fit of anti-irrational exhuberance, decides to permit bonds to go up to the point where investors find bonds a lucrative alternative to a stock market that won't provide 25% returns any longer. It will serve to deflate the margined stock positions out there as well as providing a firmer base of support for the market as we head into Y2K. This fall may truly become a T-Bill autumn, as overseas nervousness returns to foreign economies less prepared for Y2K than the US. It also serves the purpose, I suppose, of permitting the Fed to then save that Americans are now "saving" more because their investment dollars are going into debt securities instead of asset based ones. Funny world we live in. Regards, Ron

To: Chip McVickar who wrote (2037)	8/10/1999 9:52:00 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

Hi Chip, Well to start with the Oct 98 low yield was a panic low based on a lot of fear. Those rates were unsustainable. Once it became clear that the crisis was passed it was natural for long rates to bounce back up. My speculation that given no movement in short rates and all other things being equal the equilibrium long bond yield would be ±5.5%. From that point I believe two other factors have contributed to the continuing rise in yields. The first is the obvious, with the boost to the domestic economy provided by last year's cuts the economy has been quite strong. This has led to a lot of ongoing speculation that the Fed would need a series of rate hikes. This speculation has been pretty prevalent in the bond market long before CNBC et al started picking up on it. The second factor is, I believe, the competitive demand for funds. At first it was coming from the US equity markets. With equities showing 20% plus returns with diminished risk perceptions it was very hard for the bond market to hold on to funds. Coupled with a very large corporate debt calendar it was drawing money away from bonds. Recently there has been the addition of overseas 'demand'. With foreign markets stabilizing and in many cases rallying a lot of the money that came to US bonds for safe haven is returning to those markets. I've been looking for 6.50 bond yields unless we see a trigger to spark renewed safe haven demand. If the markets stay calm I would not be surprised to see at least two more Fed hikes and a 'ridiculous' 7%. hope this helps Henry