NEW YORK - Like many of his peers, bond strategist James Snyder of Northern Trust Co. has misgivings about the Clinton administration. But he remains optimistic that, with economic growth at about 3%, "we're not going back to recession."

That doesn't mean there isn't cause for concern, particularly with interest rate volatility caused by political uncertainty, said Mr. Snyder, a senior vice president who oversees the management of some $9 billion in fixed-income assets for the unit of Chicago-based Northern Trust Corp.

"The last seven to eight weeks have seen increasing volatility with the long end up, just trying to adjust to a new style," Mr. Snyder said. "The administration keeps surfacing ideas, but it seems the more ideas that come out, the less agreement there is about what to do next."

Long Rates Seen as High as 7.50%

The uncertainty is building a risk premium into bonds as investors seek more yield, driving interest rates higher in a period of slow economic growth. Long-term interest rates should rise to 7.25% to 7.50% in the next couple of months as a result, Mr. Snyder said.

He said short-term rates are going up, and he is positioning his portfolio for a flatter yield curve. About $5 billion of the bonds he manages are in corporates and $4 billion in municipals.

If not for the massive government bailout of failed thrifts and banks, the United States could have slipped into depression, the Northern Trust executive said.

One problem the nation must tackle is long-term entitlements, he added. "Our growth rate will have to exceed the growth of the tax rate because we can't inflate our way out. Too many of these programs are inflation-indexed."

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