Macro Monitor

T-bond achieves Leuthold long term target of 5%: hedge fund turmoil and Asia induced flight to quality has helped drive rates down too far, too fast. When some of the short term distortion subsides, yields could pop back up.

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T-bond ahead of itself, fueled by flight to credit quality...Yields could back up should Asia outlook improve, or equity market rally significantly.

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Bond market still ahead of itself, fueled by flight to credit quality...But money flows could slow, should Asia outlook improve, or Japan act decisively.

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Bond market getting ahead of itself, fueled by flight to credit quality...But money flows could slow, should Asia outlook improve or Japan act decisively.

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Asian crisis not helping much (yet), putting brakes on strong U.S. economy (except on earnings)...Asia (including Japan) will become heavier “drag” on U.& in next six months...Inflation likely to increase slightly but still viewed as tame.

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Near term, bond market now stabilizing after being roughed up during most of April…We see no imminent Fed loosening or tightening in the cards at this point.

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Near term, bond market now stabilizing after being somewhat ahead of itself...No Fed loosening or tightening in the cards at this point.

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Asian crisis not yet applying brakes to strong U.S. economy...Asia should be bigger “drag” on U.S. in next six months. Near term, bond market still correcting from being somewhat extended.

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Wage pressure is only cloud on inflation horizon.

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The U.S. yield curve could mildly invert in 1998, even with a passive Fed.

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Today's moderately positive sloping yield curve may evolve into a flat or mildly inverted yield curve later in 1998...

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Long term rates are "normally" higher than short term rates to compensate investors for the likely risk that inflation will undermine the value of their bonds.

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Yield curve typically inverted about 62% of the time.

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Wage inflation looked like it was finally taking off in October, but November's data showed a different picture, as four of the nine subsets (including Total Wage inflation) moved lower.

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Long treasuries are still well above the underlying interest rate (real rate of 4%-5%). The inflation outlook remains tame.

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade. Inflation outlook positive.

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Among the industrial nations, U.S. bond market offers highest yields, a reversal from earlier in the decade...A return to “normalcy” implies falling US bond yields.

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Bond risk still considered well below potential equity market risk...longer term, bond potential returns at least equal to potential equity returns.

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How long can the Goldilocks’ economy keep going? The current economic expansion (at 25 quarters) is long in the tooth by historical standards. Inflation outlook improved. Shortage of treasury bonds to become a reality?

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Fed may tighten later in the year to slow down economy. Inflation cool, but wage pressures a worry. U.S. rates very competitive with foreign yields.

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