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Subject:  Re: TIPS watch Date:  3/17/2006  9:16 PM
Author:  DrTarr Number:  15813 of 36397

We've been hearing predictions that long bond yields, meaning real return, will go up for a while now (except from t[h]ose who predict they will go down).


The crystal tennis shoe tells me that as the refinancing slows, more money will want to go out longer. There will not be as much need on the short end of the curve and folks will be tied up, and willing to stay tied up a little longer. With more money chasing the longer bonds, the price pressure will be keeping them yields down. So I do not see long end yields going up more than about 25-50 bp. (relatively above the short end.) Not that this is a big revelation given the history of the yield curve. I do see a little bump coming on the short end, maybe to around 4.75-4.90% (the 6 month holding fairly steady, but the 1-2 year area coming up to the 4.90% and the long end maybe up to 5.50%

But the kicker for me is than I see inflation poking its little head and at 5.50% long term it does not favor non-inflation instruments.


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