Bond bears are converting to a more upbeat view of the market in the face of the ongoing Treasury rally. Short-term investors recently made a record one-week shift to net long positions from net shorts, based on data going back to 1989, according to research from Banc of America Securities. The strength of the Treasury market has forced bond bears to convert, according to Ralph Axel, government strategist at HSBC Securities. The net longs also signal speculators are betting the benchmark's yield will continue to dip, according to Frank Lesh, futures analyst and broker at Rand Financial Services. The 10-year dipped briefly below the psychologically 4% important level on May 31.
The rally comes as Bill Gross, cio of Pacific Investment Management Co., predicted in his latest widely followed monthly commentary that 10-year rates could fall to 3% over the next three to five years.
Street economists are also piling into the bullish camp. Prominent bear Stephen Roach, chief economist at Morgan Stanley, revised his forecast for 10-year rates to 3.5% by the middle of 2006 from 5.45%. He joins economists at Lehman Brothers and Merrill Lynch who also recently lowered their forecasts for 10-year rates.
