Bond Yields Are Viewed Staying Flat --- Until Clinton Plans Are Known, Rates Unlikely to Decline
NEW YORK -- In the bond market, the wolf isn't at the door. But he is in the neighborhood and headed toward the house.</br></br>That's the view of many investors who have braced for a Democratic presidency by driving up the long-term Treasury bond yield more than one-half percentage point in two months to 7.76%, the highest since midyear.</br></br>Looking ahead, economists and money managers expect bond yields to remain flat to higher until after President-elect Bill Clinton announces his economic program. They don't expect any big surge in yields unless Mr. Clinton does something rash -- such as announce a deficit-widening blitz of short-term government spending. They say the economy is so weak that inflation isn't likely to come roaring back soon.</br></br>"We think that rates could go down or up, but not much in either direction," says Ian A. MacKinnon, senior vice president and head of fixed income at Vanguard Group Inc., a mutual fund company. "Clinton is somewhat of a hostage to the federal deficit, which is going to significantly constrict his ability to launch huge spending programs."</br></br>Still, the long-term outlook for bonds isn't enticing to many investors. "We're in the twilight of the bull market," says Richard J. Hoffman, chief investment strategist at Cowen & Co., which manages some $1 billion. Over the next year, he says, the yield on the 30-year bond is likely to stay in a trading range of 7.50% to 8% but could rise more the following year.