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Bank of America Raises Treasury Yield Forecast on Obama Tax Deal

Wednesday, 15 Dec 2010 01:10 PM

Bank of America Corp. raised its 10- year Treasury yield forecast for 2011 on speculation that U.S. plans to extend tax cuts will boost growth, reducing the appeal of fixed-income securities.

The 10-year Treasury yield will rise to 4 percent by the end of 2011, Ralf Preusser, head of European rates research at the bank’s Merrill Lynch unit said today in an interview. The previous forecast was 3.25 percent.

“We’ve had to raise our house view for U.S. growth,” London-based Preusser said. “The supply-and-demand dynamics change because prior to the tax compromise we actually had negative net issuance.”

The $858 billion tax-cut compromise, which President Barack Obama negotiated with Republicans, may add $400 billion to the U.S. budget deficit over the next two years, Bank of America said. The U.S. economy will expand 2.8 percent next year, Bank of America Merrill Lynch said, up from a previous forecast of 2.3 percent.

“What was on the table was that the Bush tax cuts would expire, which would have led to fiscal tightening” and hit growth, Preusser said. “Now we’re not only seeing the Bush tax cuts being extended, which was expected by most people, but we’re also seeing additional tax cuts being put in place over and above that and that’s stimulus for growth.”

Bank of America’s prediction compares with a 3.55 percent rate for the 10-year yield in the fourth quarter of 2011, rising to 3.84 percent in the following three-month period, according to the weighted-average forecast of economists surveyed by Bloomberg.

The yield was at 3.42 percent as of 4.16 p.m. in London.

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Bank of America Corp. raised its 10- year Treasury yield forecast for 2011 on speculation that U.S. plans to extend tax cuts will boost growth, reducing the appeal of fixed-income securities.The 10-year Treasury yield will rise to 4 percent by the end of 2011, Ralf...
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2010-10-15
Wednesday, 15 Dec 2010 01:10 PM
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