Wednesday, August 19, 2009

Bloomberg: Goldman Sees Strong 10- Year Note

Goldman Sachs predicted today that the 10-Year Treasury note will rally considerably in the next 6 months, according to a Bloomberg exclusive. The yield on the 10 year, currently at ~3.45%, is forecast by Goldman to reach 3.3% in the next 3 months, and 3% in the next 6 months.

For reference sake, the 10 Year Treasury note last yielded 3% on April 28th, 2009. At this time, we were in the midst of an 8 month decline in Treasury prices, following the flight-to-safety panic buying of Treasuries that peaked in December of 2008. Consequently, on April 28th, the S&P 500 stood at ~855, or ~13% below today's value of 987.

Many pundits have explained the ferocious rally in US equities as being partially a result of investor's re-allocation of capital out of safe assets and into riskier ones. This trend, according to the punditry, has been most pronounced in the selling of US Treasury notes/bills/bonds, and the purchasing of equities. Assuming that this line of reasoning is correct - the alternative is that there is no rational basis behind the stock market's rally - the logical conclusion is that the next 6 months will feature an under-performance by stocks relative to Government debt. Although such a trend may hurt the feelings of stock market investors, it may be necessary if the US Government is to issue the massive amounts of debt that it has planned for the upcoming months.

*long several components of the S&P500. This will likely change after Friday, as I've overwritten all positions and look to be called away on each. Sphere: Related Content

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