Bernanke Turns Notes Into Losers as Refinancing Rises

Discussion in 'Financial Futures' started by ASusilovic, Feb 19, 2008.

  1. he more Federal Reserve Chairman Ben S. Bernanke cuts interest rates, the less appealing 10-year Treasuries become to investors like Doug Dachille, chief executive officer of First Principles Capital Management LLC.

    Consumers taking advantage of lower borrowing costs have pushed the Mortgage Bankers Association's refinancing index to its highest level since March 2004. Ten-year notes fell 4.83 percent in April 2004 as the extra cash homeowners pocketed from replacing high-rate loans spurred bigger gains in retail sales and consumer confidence than forecast.

    As then, a drop in rates may help ease the burden of consumers' monthly payments and contribute to forecasts of a rebound in the economy, diminishing the appeal of government debt. The price of the 10-year note has fallen 3.15 percent since Jan. 23, according to Merrill Lynch & Co. index data, and St. Louis Fed President William Poole said Feb. 11 that ``the best bet is that we will not have a recession.''

    ``There is no reason for people to bring the 10-year note yield down,'' said Dachille, 43, who manages $7 billion in assets at New York-based First Principles. Given that ``the Fed is cutting rates and the administration is providing a stimulus package, you'd expect that over the next two or three years the economy will recover.''