As readers well know, we think the depth of the credit crisis means that the economy will be in low-to-negative growth territory for some time, but we did not want to deny you other points of view. And a positive reading from the credit markets is rare indeed.
Before you can say “Barack Obama is president of the United States,” the economy will be growing faster again.
That forecast is based on the rise in the five-year Treasury yield from its lowest level relative to two- and 10- year notes since 2001. The last two times that happened was during the recessions of 1990 and 2001, and the economy began to expand within nine months.
“We’re actually starting to see tell-tale signs by the market that it expects the economy to be in recovery in six to nine months,” said James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley. The five-year note “tends to be the most forward-looking point on the curve,” said Caron, whose firm is one of the 20 primary dealers of U.S. government securities that trade with the Federal Reserve.
If past is prologue, then the five-year note’s yield indicates the economy will be on the mend by the Nov. 4 general election….
“The economy in the second half will definitely get a boost from the fiscal plan” and Fed rate cuts, said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock Inc., which manages $513 billion in debt. “The pieces are being put in place.”