Treasury yields are sinking again this weekend, after a huge rally over the past few weeks. This prompted a “Mea Culpa” from James Caron, global head of interest-rate strategy at Morgan Stanley.

Please consider Bond Bears Reverse Rate Forecasts on Dollar Demand.

“This is a mea culpa from me on our rate call,” James Caron, global head of interest-rate strategy at Morgan Stanley, wrote at the start of a May 13 report. The New York-based firm, the most pessimistic among the Fed’s 18 primary dealers, reduced its year-end 10-year note yield forecast to 4.5 percent from 5.5 percent. “We did not appropriately discount the sovereign risk conditions which have contributed to keeping yields low.”

Treasuries, the benchmark for everything from corporate bonds to mortgage rates, have returned 3.4 percent since December, including reinvested interest, the most at this point in a year since gaining 8.48 percent in 1995, according to Bank of America Merrill Lynch indexes.

“The issue with this big bailout package is it probably stabilizes things in the short run but doesn’t address the root causes of the problem,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. “These countries are going to have to get their fiscal houses in order, and if they don’t, given the mechanisms that have been put into place, it creates an unsustainable situation.”

Yield Curve as of 2010-05-16

Forgive me for asking but I have a few questions:

1. Shouldn’t treasury yields be rising in a recovery?
2. Is this representative of all the hyperinflationist talk we have been seeing?
3. Are short term rates at .14% remotely synonymous with hyperinflation or even inflation?
4. Same question as above except for 10-year yields at 3.41%

The “Mea Culpa” from James Caron is admirable. Now, where the hell is the “Mea Culpa” from hyperinflationist clowns preaching hyperinflation for the last 10 years?

Mike “Mish” Shedlock
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