Treasury yield forecast?
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Treasury yield forecast?
Posted by acgeaux129 on 3/11 at 2:40 pm
I'm looking for a good source of projections for 10-yr yield, et al, but haven't had much luck. Any Bloomberg or Factset tickers welcome.


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Posted by bbvdd on 3/11 at 2:44 pm to acgeaux129
How far out? You could always just use the forward curve. It would be as good a predictor as any.


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Posted by Doc Fenton on 3/11 at 2:47 pm to acgeaux129
Are you a subscriber to the online WSJ?

It has economic forecasts from a survey sent to 52 economists every month: LINK.

I used to post it a lot, but I kind of got burned by how bad the projections turned out going into the 2007-08 crisis.

In any case, this is from the survey conducted from February 1-5:

10-yr Yield on UST
Jun 2013, 2.09%
Dec 2013, 2.40%
Jun 2014, 2.74%
Dec 2014, 3.02%
Jun 2015, 3.26%
Dec 2015, 3.59%



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Posted by acgeaux129 on 3/11 at 4:24 pm to Doc Fenton
Thanks for the input. Didn't know WSJ had that resource.

I'm a bit of a noob when it comes to using Bloomberg, but it's pretty frustrating that the accessibility of such a fundamental metric is not painfully obvious.

As for my immediate reasons for seeking this out, I'm trying to critique/strengthen my reasoning for being bullish on the housing market. Admittedly, it's somewhat of an academic exercise, but I also want to determine the extent to which changes in UST and the FF rates are correlated with changes in home lending and the housing market as a whole.

Kind of relates to a theory you've mentioned previously in regard to extremely low rates dampening supply. However, leading indicators in California, Phoenix, Las Vegas continue to look very encouraging, as I'm sure you are well aware.



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Posted by Doc Fenton on 3/11 at 4:42 pm to acgeaux129
quote:

extremely low rates dampening supply


I'm not sure that applies to the housing market though. It's more something that relates to industrial and consumer lending and genuine corporate business projects--i.e., rising interest rates might unlock "animal spirits" for certain sectors of the economy, but I'm not thinking that housing will be prominent among them.

I would tend to be a little bit bullish on the housing market as well, just because I see some serious momentum being generated there, along with a lack of motivation on the part of the Fed to stop such momentum.

Even if rates rise a little bit like the WSJ projections imply, foreclosure listings and inventory supply have dropped a whole lot over the last couple of years. There really isn't a whole lot of slack there, unless you think people are going to start defaulting again, but like many people have mentioned, lending standards are much higher now, and a lot of deals are done with cash.

Additionally, levels of employment can't get much worse. They're still at basically the same levels they were when the official unemployment rate was 10.0% in the winter of 2009-10. If people ever start finding jobs again (which is a big if given our federal health care liabilities), then that should help pick up any slack from Fed rate hikes.



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Posted by acgeaux129 on 3/11 at 4:55 pm to Doc Fenton
Let me clarify that when I said "dampening supply," I meant for mortgage lending, not housing inventories, because those are certainly declining, along with foreclosures. FWIW, NAHB also measured 38% YOY growth for housing starts for the month of January.



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Posted by Doc Fenton on 3/11 at 5:06 pm to acgeaux129
quote:

I meant for mortgage lending


Yeah, that's what I meant too.

I support a someone unorthodox theory (but one gaining broader acceptance all the time) that rising interest rates will stimulate increased lending and borrowing in certain industrial sectors, but even I do not think that rate hikes will cause mortgage lenders to expand their activity and risk-taking. It's sort of a separate category, for the very reason that it's seen as a kind of cash cow business (as opposed to genuine engines of productivity growth) to push as hard as possible when rates are super low. It's emblematic of the whole problem with ZIRP--i.e., the financial industry throwing money out to certain asset classes or sectors of the economy (as a sort of minimum risk quasi-arbitrage) that don't really represent true growth prospects.

quote:

NAHB also measured 38% YOY growth for housing starts for the month of January.


Kind of hard to know what to think about this unless put in the context of where housing starts are now relative to where they were in 2007.



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Posted by acgeaux129 on 3/11 at 5:15 pm to Doc Fenton
Definitely an interesting viewpoint.

quote:

Kind of hard to know what to think about this unless put in the context of where housing starts are now relative to where they were in 2007.


Well the context is the actual concept of YOY-- it's definitely picked up over the last year (California is around 115% I believe). And I was kind of operating under the assumption that you know we aren't remotely near the peak (we are like 65% below summer 2005 level). Coupled with lower inventories, housing foreclosures, etc., definitely think the outlook is strong. I'm still a dum FIN undergrad and obviously no expert, though.


This post was edited on 3/11 at 5:16 pm

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Posted by Doc Fenton on 3/11 at 5:27 pm to acgeaux129
quote:

you know we aren't remotely near the peak


I kind of figured, but I hadn't looked at the annual numbers in a very long time. Never trust reports that only give you a percent change over a single period of time. (NOTE: A huge pet peeve of mine are typical media reports talking about how income at Corp. X increased 130% from the previous year, like that's supposed to mean anything by itself, ya know?)

quote:

we are like 65% below summer 2005 level


Now that's the more informative bit of data.




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Posted by foshizzle on 3/11 at 8:11 pm to Doc Fenton
quote:

Are you a subscriber to the online WSJ?

It has economic forecasts from a survey sent to 52 economists every month:


Seriously, you will do better flipping a coin. Some witty econ professor at a teaching college wrote a letter to the editor along those lines back in the early 90's, I may still have the letter somewhere. The gist of it was that the forecasters couldn't even get the direction right better than a coin flip, much less the actual rate itself.

The best part is that some of these had predictions to two decimal places.



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Posted by OFWHAP on 3/11 at 8:18 pm to foshizzle
quote:

Seriously, you will do better flipping a coin. Some witty econ professor at a teaching college wrote a letter to the editor along those lines back in the early 90's, I may still have the letter somewhere. The gist of it was that the forecasters couldn't even get the direction right better than a coin flip, much less the actual rate itself.

The best part is that some of these had predictions to two decimal places.


Haha while you're correct, I'm sure investors would prefer to hear that you lost their money while listening to 52 economists rather than trading based on the results of a coin flip.



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Posted by foshizzle on 3/11 at 8:24 pm to OFWHAP
Found the aforementioned letter:

“HEADS I WIN, TAILS YOU LOSE”
Appeared in the Wall St. Journal, August 6, 1996

Your semiannual survey of economists has come and gone (July 1) and I was not included again. This is a shame because I have developed a complex economic model for predicting the yield on the 30-year Treasury bond. Much of the process is proprietary, but I will share some details. I first gather all sorts of economic data, including consumer confidence, nonfarm payroll, the Producers’ Price Index and those all-important commodity prices, with a special emphasis placed on gold, of course. I then contact Eleanor Roosevelt to get her thoughts on the mood of the Federal Reserve. And finally, and this is most important, I reach into my left pocket, pull out a 1993 Canadian penny and flip it.

Astute readers will no doubt argue that my model gets the direction of long-term rates correct only about half of the time. To these cynics I point out that there have been 29 surveys conducted since the Wall Street Journal began asking economists for their 30-year T-bond yield forecasts. The consensus estimate of these highly-paid economists for the 30-year bond has been in the wrong direction in 20 of these 29 surveys. Furthermore, 43 economists have participated in 10 or more surveys. Only 13, or 30%, have gotten the direction correct more than half of the time, with only one economist breaking the 60% barrier.

Interest rate forecasts are most important when the interest rate movements are large, and there is where my model shines. The yield on the 30-year Treasury bond has ended up or down more than 100 basis points during the six-month prediction period on ten occasions. The economists’ consensus forecast (and I use this term loosely) was in the right direction only twice. My model has predicted the right direction, believe it or not, in five of 10 periods.

I will ignore the Journal’s slight and provide my forecast to your readers anyway. The Canadian maple leaf is facing up, suggesting rates will decline. I noticed six economists predicted 30-year rates out to the second decimal place (for example, 7.29% instead of 7.3%). I too have a good sense of humor and therefore predict the yield on the 30-year bond will fall to 6.71%. Readers who desire future forecasts will have to purchase my newsletter.

Kevin Stephenson
Assistant Professor of Economics
Middlebury College
Middlebury, Vermont





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Posted by bbvdd on 3/11 at 9:37 pm to acgeaux129
Are you on bloomberg? If so I can give you some commands to help you out.

Forward curve is: fwcv <go>
You can find housing starts here: Eco<go>

Generic 10yr UST: GT10 govt <go>



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Posted by acgeaux129 on 3/12 at 1:42 am to bbvdd



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Posted by TyOconner on 3/12 at 1:44 am to acgeaux129
50 things you should know about investing says that treasuries produce a negative yield FWIW. IMO they are correct.


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Posted by bbvdd on 3/12 at 1:57 pm to TyOconner
quote:

50 things you should know about investing says that treasuries produce a negative yield FWIW


So does everyone else. Just look at TIPs, you have to go out 15yrs to find a positive yield.



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