And now, your moment of bond market zen...

1) Admist various worries about interest-only mortgages, few have mentioned the largest interest-only borrower in the U.S... the U.S. Treasury. Treasury bonds pay periodic interest only, with principal paid only at the end of the term.

2) A poll of 68 economists conducted by Bloomberg at the end of 2005 showed a median prediction for the 10-year Treasury yield of 5.00% at the end of 2006. Currently the 10-year is 4.70%. Barring a large change in yield today, this will easily be the most accurate year-end survey Bloomberg since 2000. The survey vs. actual 10-year rate over previous five years?

2004 Survey: 5.04%, Actual (end of '05), 4.39%
2003 Survey: 5.25%, Actual, 4.22%
2002 Survey: 5.00%, Actual, 4.25%
2001 Survey: 5.50%, Actual, 3.82%
2000 Survey: 5.40%, Actual, 5.05%

Median of the same survey for year-end 2007? 4.80%.

3) If current levels hold, the 10-year Treasury will have finished each calendar year within 43bps of the previous year end in 5 of the last 6 years. In the previous 8 years, the 10-year changed in yield by at least 68bps every year and changed by more than 100bps 5 times.

4) Also if current yields hold, it will mark only the second time in 9 years that the 2-year changed in yield by less than 100bps.

Happy new year.