What’s Up for 2018? Outlook for Inflation and Home interest rates


Here were while in the first week of 2018! As I mentioned inside my last Economy & Markets article, Normally i center on short-term overreactions in the Treasury bond market and not just long-term forecasting.

But since Harry plus the remainder of the Dent Research team their own personal opinions on the spot that the financial markets are set to move at the moment, I’ll take our stab advertising online.

Throughout 2017, long-term Treasury rates fluctuated between a high of 3.19% in mid-March towards a low of slightly below 2.68% in September. Those fluctuations were significant enough to provide some nice trades in my Treasury Profits Accelerator service, but volatility was notably absent.

Like in stocks, volatility declined in the Treasury bond market significantly in 2017. It really is a problem for options strategies like mine if prices don’t move, option premiums decline. While my winning percentage was excellent, low volatility hurt performance because “snap-back” overreactions weren’t as crucial as they normally would be with higher volatility.

Federal Reserve policymakers are planning on maintaining steadily increasing interest rates policy or normalizing, determined by current projections.

And let’s starting point, the Fed is frequently wrong on the subject of forecasting. I am not talking policy forecasts, but economic forecasts. Decision makers might be made to alter the course at some point next year.

Fed members have continually projected a 2% inflation rate forever from the recovery last 2009 C and we’re still not there, some eight years later. They’ve recently admitted that they are confused about what drives inflation.

Better late on the party than never, I guess-

I think the Fed is going to be surprised that inflation actually covers more than expected this coming year. That surprise inflation should develop a nice selloff in Treasury bonds that should drive long-term yields to approximately 4%. I’m projecting this may will occur in the first quarter of this year.

I expect that volatility while in the Treasury market increases in 2018 for a couple reasons, but there’s one particularly big catalyst.

Global sovereign bond markets are already manipulated by central banks for several years, also in 2018 we’ll see both European Central Bank and the Bank of Japan start to decelerate or simply reverse stimulation programs. When you do, investors are going to be quick to dispose of, and regardless of Fed does won’t matter. U.S. Treasury bonds prices should go lower and yields will jump.

As Talked about earlier, I expect long-term Treasury yields to kick or punch 4% in 2018 as well as a significant steepening with the currently flat yield curve.

Now, after that happens, we could view the yield curve flatten more or even invert. Usually as soon as the yield curve inverts (for example long-term yields are lower than short-term yields), we’re inside of a recession.

Rising rates will spook stock investors and likely trigger a leading selloff. I feel we’ll visit a major sell-off in both bonds and stocks which, is unusual because money from stock sales usually relocate to the protection of Treasurys. Volatility will spike charges when you do.

You can prepare and benefit from surprises from the real estate markets, and specifically in the Treasury bond market with Treasury Profits Accelerator.

Good investing,

Lance Gaitan
Editor,?Treasury Profits Accelerator


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