January 16, 2015


A Contrarian Call for Another Low-Rate Year (Anchalee Worrachate, January 15, 2015, Businessweek)

Steven Major did something most people didn't: He got the bond market right in 2014. While many Wall Street bond forecasters said yields on 10-year Treasuries would approach 4 percent, Major, the London-based head of fixed-income research at HSBC Holdings, correctly predicted in August 2013 they would drop to about 2.1 percent by the end of 2014. "Some investors thought we were completely bonkers," he says. One client called urgently while Major was on a trip to Dubai because he thought 2.1 percent was a typo.

This year, Major is defying the consensus again. Wall Street sees the bond market headed for a big selloff: Accelerating growth, the argument goes, will lead the Federal Reserve to start raising interest rates to make borrowing more expensive and keep the economy from overheating (bond prices fall when rates move higher). The median estimate of 74 forecasters in a Bloomberg survey is that the 10-year Treasury yield will hit 3 percent by yearend. Major says yields will keep dropping, possibly to as low as 1.5 percent, before turning up to end the year at 2.5 percent. The yield stood at 1.9 percent on Jan. 13.

Major says central banks won't raise rates while global growth remains weak. He says economic weakness will persist in part because of the vast amounts of debt governments took on during and after the financial crisis.

Rates will stay "low" because of deflation, which, of course, makes them normal to high. Indeed, the main drag on the world economy is probablythe usurious nature of recent rates.

Posted by at January 16, 2015 2:42 PM

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