Salient to Investors:
JPMorgan Chase said the drop in the yield on 10-yr Treasuries below 1.7 percent indicates investors expect GDP to fall 0.3 percent next year as the fiscal cliff takes effect. Terry Belton at JPMorgan Chase continues to believe that Congress avoids the fiscal cliff.
Priya Misra at Bank of America Merrill Lynch said the fiscal cliff is being priced in because it’s the biggest risk – without the cliff we would grow 2 to 2.25 percent.
The CBO said the fiscal cliff would cause GDP to contract 0.5 percent in 2013 and increase unemployment to 9.1 percent in Q4 2013.
Economists expect the US economy to grow 2 percent in 2013 and 2.7 percent in 2014.
The median analyst expects the 10-yr T-note to fall too 1.9 percent through March 2013.
Bill Gross at Pimco said the 10-yr note have a bid based upon expectation for easy money as far as the eye can see, and finding that middle ground to avoid the fiscal cliff will be very difficult.
Bart Oosterveld at Moody’s said the fiscal cliff would lead to a sharp reduction in the federal deficit, so from a credit perspective is beneficial.
Mike Materasso at Franklin Templeton Investments said it would not be a problem if the US received a ratings.
Ken Volpert at Vanguard is optimistic there will be a budget compromise.
James Sarni at Payden & Rygel said the market hasn’t priced in the full impact of the fiscal cliff, otherwise we’d be near all-time lows.
Rich Tang at Royal Bank of Scotland said talk of a grand bargain is pie in the sky, and the market is pessimistic about an agreement.