Treasury bulls at Goldman unfazed by rising yields

MarketWatch ^ | March 30, 2010 | Min Zeng

[Cheap_Hessian]

NEW YORK (MarketWatch) -- Rising Treasury yields are causing some hand-wringing over the market's ability to absorb the large amounts of debt the U.S. has to sell, but not at high-profile Treasury market bulls such as Goldman Sachs and HSBC.

They and others remain unfazed by the recent rise in bond yields, forecasting instead that weak economic growth and tame inflation will spur demand for low-risk U.S. government debt later this year and force yields back down again.

"The recent move (higher) is a buying opportunity...I don't think a sustained break above 4.0% in the 10-year Treasury yield will happen," said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London.

That's in contrast to the bears' view--held for example by Morgan Stanley and bond fund giant Pacific Investment Management Co. They argue that mounting U.S. deficits and rising debt supply, seen around $1.4 trillion this year, will push long-dated Treasury yields higher just as the economic recovery picks up speed, driving investors into assets with higher yields than Treasurys.

At the heart of this split lies the debate over the strength of the economic recovery. While growth has picked up in recent quarters, the rebound was driven mainly by the unprecedented amount of fiscal and monetary stimulus. Consumer demand--a key driver of economic growth--remains weak, while the unemployment rate, at 9.7%, is elevated and only expected to improve slowly.

[JoSixChip]

"low-risk U.S. government debt" As long at there is ink and paper, America will always pay her debt. At least there is still something that is American made.

[zeugma]

goldman shilling for the fed. surprised I am by this. /s