|
Economic Outlook 2010 - Interest Rates |
In the near term, further credit issues and
another "flight to quality" could provide solid
returns in high quality bonds. The weakness
in our economy will likely keep interest rates
in check; they don't tend to rise even in the
early stages of a recovery.
Federal stimulus, including money borrowed
from foreign creditors, gave a temporary
boost to auto and home sales in 2009. The
$787 billion legislation was crafted to pour
most of the funds into the economy in 2010
and will provide a stimulus before the fall
elections.
Excessive spending and FED easing outline
the path for future inflation. The dollar's
weakness adds to this and makes TIPS
(Treasury Inflation Protected Securities) and
bonds of other high quality sovereign nations
attractive.
Tax hikes and appealing yields make a
strong case for the highest quality GO
(general obligation) municipal bonds. This
isn’t a time to chase lower quality bonds of
any sort.
|
| Positives |
Negatives |
 |
FED working to keep rates low |
 |
Too much supply |
|
Mid-term election year best for bonds |
|
Massive deficits on horizon |
|
Bonds do well in recessions and post recession periods |
|
Dollar devaluation |
|
Macroeconomic indicators favorable |
|
Future inflation |
|
Demand remains high |
|
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