Wall Street's biggest bond-trading firms cut their forecasts for the 10-year Treasury yield after Hurricane Katrina sparked some doubt that the Federal Reserve will raise interest rates Tuesday for the 11th straight time.
The note's yield, a benchmark for company borrowing and mortgage loans, may reach 4.48 percent by year-end from 4.26 percent today, based on the median estimate of the 22 primary dealers of U.S. government debt that trade with the Fed. The median was 4.63 percent in a survey published Aug. 8.
The costliest U.S. natural disaster drove consumer confidence to the lowest since 1992 and led economists to cut their growth estimates. Economists at four firms including UBS Securities LLC said the Fed won't increase its benchmark interest rate tomorrow - the first time since at least May when all 22 haven't agreed on higher rates, Bloomberg informs.
“With Katrina the potential for rates to stay lower than they otherwise would have is greater,” said Gerald Zukowski, deputy chief economist in New York at Nomura Securities International Inc., who forecasts the Fed will leave rates unchanged tomorrow. “If the Fed pauses, it takes additional reasons away for yields to rise.”
Nomura predicts a 4.25 percent year-end 10-year note yield, down from 4.6 percent in August. HSBC Securities USA Inc. and Merrill Lynch & Co. are the other firms that said the Fed will keep its key rate at 3.5 percent tomorrow.
Estimates for the 10-year note's yield at year-end range from 4 percent at HSBC to 5 percent at Bear Stearns Cos., Deutsche Bank AG and UBS.