Nomura’s outlook for the 10-year, the only Treasury to watch, suggest a tighter range for their baseline scenario in 2011 than in 2010.
That’s because markets are becoming less variable, meaning there is less we don’t know than we do know compared to 2010.
Still there are quite a few threats facing the 10-year in 2011, that might derail your rates strategy. We could see a simultaneous municipal bond and sovereign bond crisis, that pushes yields lower. Or inflation could rise more than expected and Congress could go crazy with the tax cuts, boosting the yield.
Another big problem hanging over investors’ heads in the U.S. is the debt ceiling. Nomura believes that raising the debt ceiling in March will not be easy, and this could prevent treasuries from coming to market that would otherwise, hitting supply.
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