Tuesday, March 21, 2006

We’re Going to 5.25% by the Summer

Today’s big news was Ben Bernanke’s indication that the Fed will continue to increase rates since there is little chance of a recession.

March 21 (Bloomberg) -- The U.S. Treasury yield curve inverted for the first time in nine days after Federal Reserve Chairman Ben S. Bernanke indicated interest rates will continue to increase and a measure of inflation rose more than expected.

Two-year note yields surged above those of longer-maturity debt as traders raised bets on the number of times the central bank will lift borrowing costs after Bernanke said low long-term yields aren't a sign of a slowing economy like in the past. A government report today showed wholesale prices excluding food and energy rose in February.

``We're a little bit more bearish than what's built into the market,'' said Donald Ellenberger, who oversees about $5 billion as co-head of government and mortgage-backed securities at Federated Investors Inc. in Pittsburgh. He said there is a ``decent probability'' the Fed increases its target rate to 5.25 percent from 4.5 percent now.



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