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Small Businesses Less Optimistic in March
by Asha Bangalore of Northern Trust,
The Small Business Optimism Index of the National Federation of Independent Business fell in March to 92.5 from 94.3 in the prior month. The March decline is the first after six monthly gains since September 2011. Although the percentage of respondents indicating that poor sales is problematic has held steady for two straight months, it has failed to show an improvement in March. The index tracking plans of firms to increase employment declined to zero from 4.0 in the prior month, the poorest showing since October 2008, which was during the global financial turbulence.
The Greenback Remains the Preferred Choice of Official Foreign Exchange Reserves
by Asha Bangalore of Northern Trust,
The IMFs Currency Composition of Official Foreign Exchange Reserves (COFER) database continues to indicate that dollar remains the preferred reserve currency. In Q4 2011, the dollar made up 62.1% of official reserves vs. 61.8% in Q3. The dollar accounted for 61.4% of official reserves in 2011 vs. 61.8% in 2010 and 62% in 2009. The euros share was virtually unchanged in 2011 at 26%. Is the dollars role as an official reserve currency shrinking? A small decline is visible prior to the onset of the crisis but the dollar has prevailed in the past three years.
Why Should Not Stocks Have Done Well? or Business, With Enemies Like This, Who Needs Friends?
by Paul Kasriel of Northern Trust,
Brent crude oil is trading around $122 and change today, down from a peak of $128.31 on March 9. The rapid run-up in oil prices since late-January has made a dent in household budgets and keeps us wondering if it is permanent. The reasons for the jump in oil prices in recent months is largely a supply story the Iran nuclear controversy raising concerns about future oil supply and actual supply bottlenecks in several spots of the world. The support to this thesis is visible in the recent behavior of industrial metal prices.
Kasriel's Parting Thoughts - Has the Fed Boosted the Stock Market?
by Paul Kasriel of Northern Trust,
The Feds actions have benefited the stock market as well as aggregate demand for goods and services in the U.S. economy. Would you have preferred that the Fed sit idle as it did in the early 1930s, with likely similar results for the stock market and the economy in recent years as occurred at that time? The Fed has simply provided some of the credit to the economy that the private MFI system would have had it not been crippled with loan losses. And even with the Feds additional credit creation, total MFI credit growth has fallen short of the long-run normal credit creation of private MFIs.
Kasriels Parting Thoughts Mary Matlins Economics
by Paul Kasriel of Northern Trust,
There is a controversy about whether one should use real GDP or real GDI to evaluate the performance of the U.S. economy. Real GDP is obtained by adding up spending across the economy and real GDI is computed by adding up income earned. Conceptually, GDP and GDI are identical but the source data for each is different and they yield different numbers. The GDI measure is gaining attention; Jeremy Nalewaik of the Fed has pointed out the National Bureau of Economic Research uses monthly indicators, GDI and GDP to determine official dates of business cycle peaks and troughs.
One Year Into the Arab Spring
by James A. Pressler of Northern Trust,
The last three months marked the first anniversary of events considered unthinkable before 2010. The past year saw the outbreak of protests throughout Tunisia, Egypt, Bahrain and beyond; an outbreak of democracy not imported from the industrialized powers but home-grown. And as each dictatorship fell, onlookers checked off another successful transformation from the Arab Spring. Such waves of change felt as unstoppable as they were inevitable, and a feeling emerged that it was only a matter of time before the Middle East/North Africa (MENA) region stepped into the third era of Arab awakening.
Hey, Big Spender?
by Paul Kasriel of Northern Trust,
Some political movement ought to unfurl the Mission Accomplished banner with regard to reining in federal government spending. As shown in the chart below, in the 12 months ended January 2012, the cumulative total of federal outlays-defense, non-defense, entitlements, interest on the debt-increased only 1.5% vs. the 12 months ended January 2011. The median growth in 12-month cumulative total federal outlays from January 1954 through January 2012 is 6.6%. Starting with the 12 months ended March 2010, this measure of growth in federal outlays has been below the long-run median.
If Current Bank Credit Trends Continue, Bet Against the Feds Interest Rate Forecast
by Paul Kasriel of Northern Trust,
A majority of FOMC members expect that the interest rate on federal funds, an interest rate controlled by the Fed, will not be increasing until late in 2014. If the current trend in the behavior of bank credit continues in 2012 and into 2013, I believe that the FOMC will be lifting its federal funds rate target early in the second half of 2013. Again, if the current growth trend in bank credit continues, a failure on the part of the FOMC to raise its federal funds rate target and shrink its balance sheet will sow the seeds of a rate of consumer inflation above the FOMCs 2% annualized target.
Should the Definition of the Central Bank Lender of Last Resort Function Be Expanded?
by Paul Kasriel of Northern Trust,
If the ECB needed to expand its balance sheet to maintain the specified rate of growth in combined ECB and MFI credit, the ECB could purchase in the open market the requisite amount of pan-euro bonds rather than individual-country sovereign debt. In this way, the ECB could fulfill its expanded lender-of-last resort function without taking on individual-country sovereign-debt credit risk.
Outlook 2012: Living In Interesting Times
Setting aside the debate over the appropriateness of various policy directives, this Outlook considers which countries or regions are vulnerable as we head into 2012. Not surprisingly we start off with Europe, then go through the U.S., industrialized Asia, and Latin America, finishing with a brief discussion of the political powder keg that is the Middle East.
Asia: Diverging Outlooks Going Into 2012
by James A. Pressler of Northern Trust,
With most of the industrialized world focusing on all things European, we thought it might be worthwhile to see just what was happening on the other side of the Ural Mountains. Asia has not become embroiled in the debt problems sweeping through the likes of Greece and Italy, and its exposure to the euro is contained. However, what happens in Europe will inevitably drift into Asia, so a look at its major economies might provide insight into what awaits the region in 2012. In particular, we are focusing on the two most populous countries in the world China and India.
Europe Is in for a Long Recession
by Paul Kasriel of Northern Trust,
Collectively, the 27 sovereign nations that make up the EU most likely entered a recession this quarter. Given that the EU represents the largest economy in the world, a recession there is no small beer for the rest of the world. The Greek tragedy morphed into an Italian comedy. Now, it has become a French farce. The plot behind all of these theater forms is how an economy struggles when deprived of adequate bank credit. Although eurozone MFI credit is growing, its growth is much slower than it was prior to the global recession.
Just as Domestic Demand Picks Up, Foreign Demand Weakens
by Asha Bangalore of Northern Trust,
The Commerce Departments first estimate of Q3:2011 real GDP growth was 2.5% annualized. Although this headline was better than the 0.8% annualized real GDP growth in the first half of 2011, underneath the headline, the news was even cheerier. Real final sales to domestic purchasers grew at an annualized rate of 3.2% in Q3:2011, the fastest growth of this measure since the 4.9% posted in Q2:2010. So, is it onward and upward for the U.S. economy going forward? Unlikely. Although things may be looking up for domestic demand, foreign demand for U.S. exports is expected to wane.
With Apologies to James Carville, It's the Demand, Stupid
by Paul Kasriel of Northern Trust,
If there were more demand for goods and services in the economy, then corporations allegedly sitting on all that cash would start to use it. Our current weak economic growth is largely the result of inadequate aggregate demand for goods and services, not inadequate supply. And that is why I suggested a properly designed Federal Reserve quantitative easing could chum up aggregate demand until banks are able to create adequate amounts of credit on their own to get the job done. Monetary policy is all about affecting aggregate demand; fiscal policy is all about affecting aggregate supply.
"Animal Spirits" - What Keynes Penned, Its Relevance Today
by Asha Bangalore of Northern Trust,
In Animal Spirits: How Human Psychology Drives the Economy, Why it Matters for Global Capitalism, Akerlof and Shiller explore a new avenue to understand macroeconomy and Keyness notion of animal spirits is the inspiration for their thesis. The authors of this book make an important point about animal spirits and policy making in the context of a credit crunch. In a garden variety recession, expansionary monetary and fiscal policies have the ability to revive economic activity. However, the combination of an economic recession and a credit crunch needs a special remedy.
Benjamin Strong and Milton Friedman - Ironically, Something in Common?
by Paul Kasriel of Northern Trust,
Had Milton Friedman not passed away in 2006 and were alive and writing today, he would be arguing forcefully in favor of continued Federal Reserve quantitative easing. Friedman argued that had Benjamin Strong been alive to influence Federal Reserve policy in 1930 and 1931, the recession of 1929 would not have degenerated into the Great Depression. If Milton Friedman were alive today to influence the current Federal Reserve monetary policy debate, the near stagnant economic environment we find ourselves in would not need to persist.
Fed 'Twisting' Will Stimulate Economic Activity for Bond Traders
The consensus view is that after adjourning from its September 20-21 meeting the FOMC will announce a plan to lengthen the maturity structure of its securities portfolio by increasing the proportion of longer-maturity securities in the portfolio.
If Some Dare Call It Treason, Was Milton Friedman a Traitor?
by Paul Kasriel of Northern Trust,
The principal factor accounting for the current exceptionally weak economic recovery is not unusually high uncertainty, too burdensome regulation and taxation, excessive federal government spending and/or debt or a major structural change in the economy, but rather inadequate depository institution credit creation. The reason depository institutions are not creating normal amounts of credit is that they suffered enormous losses after the residential real estate bubble burst and they remain concerned about current and/or future capital adequacy.
Jobs, Jobs, Jobs The Mantra of the Current Season
by Asha Bangalore of Northern Trust,
The unemployment rate in August 2011 stood at 9.1%. The high for the unemployment rate in the post-war period was recorded during the 1981-1982 recession when it touched 10.8% in December 1982. In this business cycle, the recovery commenced in November 1982 and by January 1985 the unemployment rate had dropped to 7.3%. This time around, the high for the unemployment rate is 10.1% (October 2009) and the recovery is 26 months old with a jobless rate, as noted earlier, of 9.1%. Consequently, the level of concern about a persistently high unemployment rate has risen significantly.
The August 9 FOMC Decision - Ineffective at Best, Dangerous at Worst
by Paul Kasriel of Northern Trust,
The FOMCs decision to commit to holding its federal funds target in a range of zero to 25 basis points at least through mid 2013 strikes me as an ineffective way to accomplish one of its goals full employment of the labor force and potentially dangerous with regard to another of its goals stability in an index of goods/services prices. In my view, the Fed should abandon an interest-rate targeting approach to monetary policy. Rather, it should adopt a quantitative-targeting approach targeting the growth in the quantity of combined Federal Reserve and commercial bank credit.
I was sent to Washington to Change the Trajectory of Government Spending
by Paul Kasriel of Northern Trust,
In the 12 months ended Jul 11, cumulative total federal outlays were 2.7% higher than cumulative federal outlays in the 12 months ended Jul 10. The average year-over-year % change in 12-month cumulative outlays from 1956 through today has been 7.6%. And with 12-month cumulative total federal receipts growing at 8.7% the cumulative deficit in the 12 months ended Jul 11 was $1.225 trillion, $36 billion less than the cumulative deficit in the 12 months ended Jul 10. With continued fiscal progress of this nature, S&P will beupgrading U.S. debt faster than the Fed can change its forecast!
S&Ps Downgrade of U.S. Sovereign Debt Some People Actually Pay Them for these Opinions?
by Paul Kasriel of Northern Trust,
S&P stated the obvious after the U.S. markets closed on August 5 - the projected growth in U.S. public debt is on a long-term unsustainable path. Rather than paying S&P for this opinion, all you need to do is look at some past CBO projections and you would have arrived at the same opinion years ago.
U.S. Debt Ceiling If Cooler Heads Do Not Prevail
by Paul Kasriel of Northern Trust,
What would be the immediate economic effect of a sudden balancing of the U.S. federal government budget? The $1.26 trillion decline in federal outlays would represent a negative demand shock to the U.S. economy. Some entities who were expecting payments from the federal government would be disappointed. These disappointed entities might have to cut back on some of their planned spending in order to be able to honor their payment commitments to others. Alternatively, these disappointed entities might have to increase their borrowing in order to honor their payment commitments.
Washington Had a Spending Problem
by Paul Kasriel of Northern Trust,
Although Washington does not seem to have a current spending problem, what about a spending problem going forward? Specifically, if the programs specified in President Obamas February 2011 budget proposal were implemented, how would growth in federal total outlays in an eight-year Obama presidential tenure compare with growth in federal total outlays of other presidents tenures? To answer this question, I have relied on projections of total federal outlays by the Congressional Budget Office (CBO), the nonpartisan scorekeeper of all things fiscal.
U.S. Businesses Appear to Have Selective Uncertainty
by Paul Kasriel of Northern Trust,
Business hiring remains weak and business capital spending is robust. The capital spending part is illustrated in the chart below showing the 8-quarter annualized growth in shipments of nondefense capital goods deflated by the PPI for capital goods. I would think that if abnormally-high business uncertainty prevailed today, there would have been considerably slower growth in price-adjusted purchases of nondefense capital goods than what has occurred.
Continued Sluggish Economic Growth Expected Through 2012
by Asha Bangalore of Northern Trust,
Bernanke indicated that the FOMC would be prepared to make monetary policy more accommodative if things do not improve. He emphasized the importance of the employment situation improving. Our forecast does not call for an acceleration in real GDP growth in the second half of 2011 nor does it call for a decline in the unemployment rate. Rather, we see the unemployment inching higher. Although we do not envision a meaningful risk of a contraction in indexes of consumer prices for goods and services in the next 12 months, we do envision continued declines in house prices.
Will China?s Real Estate Market Become the World?s Problem?
by James Pressler of Northern Trust,
There are significant imbalances in the Chinese real estate market and that this constitutes a large asset bubble that is reaching the end of its run. While there may not be one defining event that marks its collapse, over the next twelve months we expect a marked rise in NPLs within the smaller provincial and regional banks, and some high-profile defaults. And while this will not necessarily mark the end of the Chinese miracle, it will provide a substantial shock to development policies and perhaps a renewed drive toward a more sustainable, domestically-driven economy.
Poor People or Old People - Who Do We Want to Help?
by Paul Kasriel of Northern Trust,
Milton Friedman used to talk about the "tyranny of the status quo." By that, he meant that it is difficult to change public policy because of entrenched interest groups allied with policies that have been in effect for decades. I would argue that opposition to changes in our current Social Security and Medicare programs is an example of tyranny of the status quo. The original intent of both was to provide an income support floor for our retired senior citizens. So, why do these programs supplement the income directly through Social Security and indirectly through Medicare to wealthy seniors?
Do We Have a Medicare Budgetary Problem or an Aging Population Problem?
by Paul Kasriel of Northern Trust,
If it makes sense for corporations to borrow to fund capital expenditures, why does it not make sense for the federal government to do so as well? By the gov making investments in physical capital (infrastructure) and human capital (education), the economy's future growth rate would be expected to be enhanced. This would imply higher future tax revenues (without higher tax rates) to pay the interest and principal on the debt issued to fund capital expenditures. So, rather than trying to balance the overall budget, would it not make more sense to bring into balance the operating expenses?
U.S. Monetary Policy: A Case of Self-Induced Paralysis?
by Paul Kasriel of Northern Trust,
Part of the decreased real GDP growth/increased unemployment rate central-tendency forecasts for June vs. April can be attributed to supply interruptions from Japan and higher energy prices. But given the FOMC's assumption that the supply interruptions are dissipating and that energy prices are declining, this explanation does not apply to the reduced real GDP growth and unemployment rate central-tendency forecasts for 2012. I think the central-tendency forecasts for real GDP growth and the unemployment rate are optimistic for 2011 and 2012 in the absence of continued quantitative easing.
Economy Brakes Even Before Fed Takes Its Foot Off the Accelerator
Although quantitative easing might not help stimulate domestic spending on goods, services and assets, in the words of our grandmothers-it couldn't hurt. All else the same, if the Fed purchases securities in the open market, the seller of these securities can do one or a combination of three things with them - spend them, lend them or just hold them. If sales proceeds are spent or lent, then there is a net increase in spending on something in the economy. Only if the sales proceeds are just held would quantitative easing not lead to a net increase in spending in the economy.
Is There a Guide for What May Trigger QE3?
by Asha Bangalore of Northern Trust,
The 'hurdle for QE3' is high. Discussion of the current U.S economy almost always includes mention of the Feds view that justification for QE3 is more stringent than QE2. We have been mulling this thought around for a few days and here is the checklist for what may trigger QE3. First, labor market conditions need to show a consistent improvement which suggests that the turnaround is durable. The requirements pertaining to the labor market could be summed up as: back-to-back declines in the unemployment rate, strong gains in payroll employment, and a declining trend of initial jobless claims.
The Fed Terminates QE, We Lower our GDP Forecast
by Asha Bangalore of Northern Trust,
We have been putting a lot of emphasis on monetary financial institution (MFI) credit as a cyclical determinant of domestic demand for goods and services. We define MFI credit as the sum of the credit extended by the Fed, the commercial banking system, loan system and the credit union system. MFI credit is credit figuratively created ?out of thin air.? There is a distinction between created credit and transfer credit. In the latter is transferred from the grantor of this credit to the recipient of credit. Transfer credit, then, is funded by the grantor by postponing some spending.
Standard & Poor?s Downgrade Outlook on US Sovereign Debt ? Initial Reflections
by Asha Bangalore of Northern Trust,
S&Ps changed in its outlook on US debt to negative but reaffirmed the AAA rating of the nation's debt. Todays market response to this action includes equity prices viewing this in negative light. The markets response is not entirely consistent with a downgrading of sovereign debt because the decline in rating implies that the financial situation of the federal government is less secure and there are doubts creeping in about the federal governments ability to meet its debt obligations. If this was the case, the dollar should have declined and Treasury security yields should have risen.
Why the Doves of the FOMC Have an Advantage at the April FOMC Meeting
by Asha Bangalore of Northern Trust,
There are differences of opinion among members of the FOMC that have emerged in speeches of several Fed officials in recent weeks. A line is being drawn between those who favor the Fed's current accommodative monetary policy and those who are supportive of policy actions to curb demand and contain future inflationary pressures. Based on evidence present here, the doves appear to have a strong advantage at the April 26-27 FOMC meeting to stay the course and complete the $600 billion asset purchase and watch the evolution of economic conditions.
One Man?s Fiscal Austerity is Another?s Prosperity?
by Paul Kasriel of Northern Trust,
Fiscal austerity is the rage in the developed economies. The proponents of fiscal austerity argue that it will lead to economic prosperity. The opponents of fiscal austerity argue that it will lead to poverty. If the government decides to spend less, then, it will need less funding. This, in turn, implies that the government will either cut back on its current taxation or cut back on its current borrowing. The former recipients of the cut-back government expenditures will indeed experience a decline in their spendable funds. However, taxpayers will find themselves with extra spendable funds.
Near-term Outlook For A Troubled World
Although 2011 is only three months old, the world has changed dramatically. Along with the evolving European debt crisis, seemingly -isolated Tunisian protests grew to varying levels of upheaval throughout the Arab world, and an historic earthquake and subsequent tsunami have left Japan?s outlook under a cloud of uncertainty. Each of these situations is significant in its scope and magnitude, but by focusing on just the key elements, the main risks can be appreciated.
To QE or Not to QE? That is the Question
Historically, % changes in MFI credit "explain" a large proportion changes in nominal GDP. Commercial bank credit accounts for the largest component of private MFI credit. Since the FOMC commenced its second round of easing in early November 2010, the increase in Federal Reserve and commercial bank credit has been dominated by the increases in Federal Reserve credit. If the FOMC terminates its easing policy in June and private MFI credit creation does not pick up, total MFI credit growth will slow. All else the same, this would augur poorly for nominal GDP growth in the second half of 2011.
Key Market Trends between QE1 and QE2
by Asha Bangalore of Northern Trust,
QE1 provided support to the U.S. economy and revived economic activity. In the months before QE2 was put in place, a turnaround of the U.S. economy from a severe recession was a vote of confidence which lifted equity prices. If economic reports in the months ahead plant seeds of doubt about the durability of economic growth, equity prices are most likely to post declines and a drop in interest rates is possible, irrespective of whether QE2 has expired.
Fisher Could Dissent if Oil Prices Maintain Upward Trend
by Asha Bangalore of Northern Trust,
Dallas Fed President Fisher indicated yesterday that he would vote to scale back/discontinue the Fed's Treasury securities buying program of $600 billion at the March 15 FOMC meeting. Last week, Chairman Bernanke indicated that only under conditions of sustained growth, expanding payrolls, and inflation readings that are consistent with price stability would the Fed consider terminating the program. Economic data indicate that the Fed is not close to meeting these. In his opinion, the Fed's job "is done" and continued purchases of Treasuries may result in raising inflation expectations
Equity Markets and Oil Prices
by Asha Bangalore of Northern Trust,
The turmoil in the Middle East and North Africa has led to higher oil prices. Brent crude oil was trading at $116.99 ($113.07 on 3/1/2011) as of this writing and West Texas Crude was quoted at $101.68 ($99.63 on 3/1/2011). The Libyan crisis has raised oil prices significantly in the last three trading days. The crisis in the region commenced the day after a Tunisian man set fire to himself on January 21, 2011.
Musings on Proposed Government Spending Cuts and Current Energy Price Increases
by Paul Kasriel of Northern Trust,
Just as labor is an important input in the production of goods and services, so is energy(E). An increase in the price of E reflects a relative shortage of E from what was the case. Just as the price of labor can increase from an increase in demand or a decrease in supply, so, too, can the price of E. Assume that before an increase in the price of E, the economy was set to go from 3% growth to 4% growth. Assume that the increase in the price of E has resulted from an increase in the demand for E. At the higher price of E due to demand, the economy will not be able to rise from 3% to 4%.
Don?t Know Much about Geography, Don?t Know Much Trigonometry, But Sarah Palin Does Know Her ...
by Paul Kasriel of Northern Trust,
On November 8, 2010, Sarah Palin commented that the Fed?s quantitative easing monetary policy was tantamount to printing money out of thin air. Sarah Palin may not know much about geography, but she does know her Fed policy. I would phrase quantitative easing a little differently. It is the Federal Reserve creating a specific amount of credit figuratively out of thin air. Theoretically, the Federal Reserve can create an unlimited amount of credit out of thin air. Of course, there would be dire economic consequences if the Fed were to create an unlimited amount of credit out of thin air.
Changing Perception of the Economy - Food for Thought
by Asha Bangalore of Northern Trust,
The bond market essentially signals the U.S. economy is turning around and is most likely to establish sustained growth in 2011. A part of the bullish sentiment commenced after Bernanke's speech in the last week of August 2010 when the Fed signaled that a second round of support was on its way. Inflation expectations have moved up (see Chart 3) from lows in the summer of 2010. But, they are yet to surpass the levels seen prior to the onset of the crisis. Actual inflation measures also do not represent a threat.
January Employment Report ? Pace of Job Growth Inadequate for Fed to Change Current Stance
by Asha Bangalore of Northern Trust,
The number of jobs created since the recovery commenced in June 2009 is troubling and raises the level of concern for policymakers. The level of employment, irrespective of how it is measured, is still significantly below the prior peak even after 19 months of economic growth. Job creation is proceeding in the desirable direction but at a tepid pace such that it is does not offer sufficient justification for the Fed to end the $600 billion purchase of Treasury securities (also known as QE2) before the planned expiration date of June 2011.
U.S. Real GDP vs. Potential GDP ? Time to Assess this Yardstick
by Asha Bangalore of Northern Trust,
The U.S. economy has registered six quarters of economic growth, inclusive of the projected increase in real GDP during the fourth quarter of 2010. There is enormous room for growth before inflation becomes a concern. The recovery phase ended in 2010 and expansionary phase of the current business cycle should commence in 2011. Cognizant of this information, markets will evaluate the performance of the economy in a different light going forward.
The 2011 Economic Outlook ? Credit Given Where Credit Is Due
by Paul Kasriel of Northern Trust,
With regard to 2011 real GDP growth, we now expect Q4/Q4 growth of 3.3% vs. 3.0%. An upward revision of 2011 Q4/Q4 real consumption growth to 2.9% from 2.5% in November is the primary factor accounting for the upward revision to the real GDP growth forecast. We are more optimistic about 2011 real GDP growth primarily because QE2 implies that the Fed will be purchasing all of the additional Treasury debt issued in conjunction with the Obama-McConnell tax and unemployment insurance compromise. We currently see more upside risk to our 2011 real GDP growth forecast than downside risk.
Deciphering Debt
2011 is likely to raise more issues about debt, with periodic market panics about debt sustainability and bailouts. We offer this primer on the issue of debt ? specifically the various measures and the roles they play in determining a country?s risk of facing some form of debt-related crisis. Metrics to assess indebtedness of nations are classified as solvency and liquidity measures. Each are discussed, as is the special topic of the banking sector and its relation to public debt. We give our view of global public-debt-related challenges in 2011.
Treasury Market's Perception of Recovery Path is Strongly Bullish, But Mind the Hurdles
by Asha Bangalore of Northern Trust,
The 10-year Treasury note yield has climbed from a recent low of 2.41% (October 6-8, 2010) to 3.27% as of this writing. The 86 bps increase in yield in a short span reflects the market's assessment of likely improvements in economic conditions during the months ahead and the impact of a projected increase in supply of Treasury debt as a result of the compromise tax deal President Obama announced yesterday.
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