Both the amount of Treasuries issued and their yields are expected to rise in the first quarter, according to the quarterly Government Securities Issuance and Rates Forecast report from the Securities Industry and Financial Markets Association.

   The economic doldrums created by the housing sector collapse and the swiftly changing credit markets will result in a net U.S. Treasury bill, note and bond issuance of $125 billion during the first quarter of this year, a total that would be more than triple the $34 billion issued in the last quarter of 2007, according to the survey of trading strategists and research analysts at SIFMA member firms.

   The analysts say Treasury yields will slowly rise during the quarter resulting in a two-year Treasury note yield of 2.9%, a five-year note yield of 3.3%, a 10-year note yield of 3.98%, and a 30-year bond yield of 4.4%. At that point, respondents say there will a slight flattening of the yield curve and then a return to current rates. Yields depend on the results of rate cutting by the Federal Reserve Board and the survey was taken prior to the Jan. 22 reduction of 75 basis points to 3.5%.

   "We are expecting slower economic growth for much of the year as the financial system works through the housing market downturn and credit market issues," says Michael Decker, senior managing director and head of research and public policy at SIFMA. "A slowing economy hurts the government's fiscal position by lowering tax receipts and puts pressure on spending programs, causing a rise in borrowing."

   Based on these economic predictions, the analysts favor shorter- and intermediate-duration investments, with 44% overweighting the zero to three-year issuances and 33% underweighing this category. Conversely, only 11% recommend overweighting and 67% recommend underweighting the 10- to 30-year duration sector.