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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 (27113)	2/24/2005 10:48:11 AM
From: stevenallen	Respond to of 110194

Two Economists Walk in a Bar ... AHEAD OF THE TAPE By JUSTIN LAHART February 24, 2005; Page C1 Banjo players and economists are probably the butt of more jokes than they deserve. It's not true, for instance, that the difference between a banjo and a Harley-Davidson is that you can tune a Harley -- it's just that for a banjo it's much more difficult. And it's not always true that if you put a question to two economists you'll get three opinions. Ask them where long-term interest rates are headed over the next year, and it's likely they'll both say up. Unfortunately that response may not invalidate all the jokes about economists getting things wrong. In The Wall Street Journal's February economic-forecasting survey, 52 of 56 economists thought that the yield on the 10-year Treasury note would be higher at the end of the year than the current 4.27%. The average forecast called for a year-end yield of about 5%. But those predictions of a selloff in the bond market suggest that a selloff isn't likely to occur, says Dresdner Kleinwort Wasserstein strategist James Montier. Using quarterly forecasts compiled by the Philadelphia Fed, Mr. Montier found that, over the past dozen years, whenever economists have predicted that 10-year yields would rise in the following 12 months, they have ended up being right only 45% of the time. Quarter- ahead forecasts for rising bond yields are even less accurate -- they're right only 22% of the time. The economists' big problem is that unlike, say, the job environment, long-term Treasury yields -- while influenced by what's going on in the economy and at the Fed -- are set by the bond market. When all the economists think the same thing about Treasurys, it's a good bet that everybody else does, too. That certainly seems to be the case now, with surveys showing that portfolio managers widely expect a rise in long-term interest rates. As with any other market, with so many people so bearish on Treasurys, it may take a lot of bad news to force a deep-enough drop to raise yields substantially. "Pretty much everybody has this hatred of the bond market," says Merrill Lynch economist David Rosenberg, one of the handful of economists who doesn't think that 10-year yields will close out the year higher. "You start to wonder who's left to sell."