Interest Rates

Expect economic expansion to pick up a bit after weak first quarter, but a 2008 recession is a possibility. 

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Expect economic expansion to slow down in the second half. A 2008 recession is a possibility.

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Still believe interest rates could be headed higher in 2007. While the economy does seem to be slowing and a recession is a possibility by early 2008, we expect the twelve month rate of inflation to accelerate in the second half of 2007.

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We still believe interest rates are headed higher in 2007. Investors have sought the safety of U.S. Treasuries amid concerns of slowing economic growth and sub-prime jitters, sending ten year T-Note yields to their lowest level since December 2006.

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We believe interest rates are headed higher in 2007. Economy picked up some in Q4. Bond market sentiment still looks too optimistic.

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Expect economic recovery to pick up a little steam in early 2007, before slowing down in the second half. A 2008 recession is a possibility. 

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Bond yields continue to fall as economic reports have tended to be on the weak side. Massive global liquidity and the search for yield have also helped to push yields lower. We have been way off the mark with our predictions for higher rates.

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Our call for a bond market correction did not pan out in October, but yields did back up in early November as weak productivity and a surprisingly low unemployment rate were released.

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Bond market remains ahead of itself and is vulnerable to correction.

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Bond market seems to be anticipating three key developments: Fed’s stance could switch from tightening to easing, the economy is slowing significantly, and inflation is licked.

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Continue to project higher interest rates over the next six months, particularly longer maturities. Short rates could begin to decline by early-mid 2007, after Fed finishes tightening and economy slows.

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It may be difficult for the economy to prolong its expansion, with the auto and housing sectors weakening, and consumer spending a big question mark. 

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Continue to project higher interest rates over the next six months, particularly longer maturities. Further Fed action will be more “data driven”.

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Continue to project higher interest rates over the next six months, particularly longer maturities. After rate hike in May, Fed’s actions will be more “data driven”.

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Based on our 6-12 month yield targets, short end of the yield curve looking more attractive.

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Data from the last seven tightening cycles suggests that too way much attention is currently being given as to when the Fed will be finished tightening. The direction of the stock market after the last rate hike has much more to do with prevailing economic and stock market conditions.

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It may be difficult for the economy to prolong its expansion, with the auto and housing sectors weakening and consumer spending a big question mark. 

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The persistent rise in short term rates could have a big impact on the consumer. The rising prime rate has boosted debt service costs substantially, and “Financial Death Traps” may be on the horizon.

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It may be difficult for the economy to prolong its expansion, with the auto and housing sectors weakening and consumer spending being a big question mark.

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The current economic expansion is considered late stage.

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