General outlook.

Pro Farmer, November, 2005

INTEREST RATES: Fed Chairman nominee Ben Bernanke reaffirmed before the Senate Banking Committee last week his top priority is "continuity" with the Greenspan-led Fed. That sparked a runup in short-term treasury yields, as the market perceived Bernanke's comments to suggest he will be hawkish on inflation and indicates the Fed will continue to increase short-term rates.

The market sees short-term interest rates rising at least three more times--in December and January under the Greenspan-led Fed--and then again in March under Bernanke. Three more 25-basis-point hikes in the Fed rate would further tighten the yield curve (2-year note versus 10-year note) and could invert the curve--short-term rates moving to a premium to long-term rates. The yield curve has...

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