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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (25946)	2/7/2005 9:41:33 AM
From: stevenallen	Respond to of 110194

Tarred and Feathered AHEAD OF THE TAPE By JUSTIN LAHART February 7, 2005; Page C1 Everybody complains about how Treasury yields have gotten too low, but nobody's doing much else about it. The year 2004 was supposed to be when long-term interest rates broke out to the upside. Amid much talk of a "bond bubble," the yield on the 10-year Treasury note was widely expected to skip from the 4.25% it started the year at to above 5%. Such forecasts were, if not wildly wrong, extremely early. The 10-year's yield ended 2004 at 4.26%. But even after being proved so thoroughly wrong last year, portfolio managers remain bearish on bonds. In its most recent survey of bond- portfolio managers, J.P. Morgan found that just 3% of respondents expect prices to rise. This pessimism is built on a number of factors. Many investors believe that official figures understate how much prices are rising, and that inflation is becoming a real problem as a result. Many managers worry over how the ever-widening trade gap is putting the U.S. into deeper debt with the rest of the world. Some also fret that a growing budget deficit will make for a big increase in the supply of Treasurys. So where are the bond vigilantes? When such concerns came to the fore in the 1980s, this quasimythical group of investors was busy dumping Treasurys and pushing up bond yields -- acting, it was thought, as a sort of thermostat for the economy. With so many people thinking that Treasurys are overpriced, surely there should be someone out there getting people together to saddle up and ride. So far, nobody has stepped forward. One reason, suggests Oxford University research economist Brad Setser, is that big investors remember how Asian central banks bought up Treasurys last year as they fought to keep their currencies from appreciating against the dollar. The effects of such purchases may be only temporary, but, with portfolio managers driven more than ever by quarterly performance, they have a hard time taking the long view. Merrill Lynch economist David Rosenberg, one of Wall Street's few bond bulls, thinks that what's going on with Treasurys has more to do with a world where nothing seems to offer much return. Which leads to the question: Does a world where it's become a struggle to find places to invest demonstrate a lack of opportunity, or a lack of imagination?