Salient to Investors:

Yields on US Treasuries, German bunds and Japanese government bonds are 1 standard deviation above their historical norm. Yields on Treasuries and bunds are more than 40 basis points below what would be 2 standard deviations from their means, and Japanese bonds are 5 basis points away. Treasury 10-yr rates have reached two standard deviations above the average twice since 2009, and each time the notes rallied. Sovereign yields are at 1.39 percent versus the 3.64 percent average of the past 20 years.

Tame inflation and lower IMF global growth estimates indicate the central banks won’t pull back anytime soon, averting a further rout.

Robin Marshall at Smith & Williamson Investment Mgmt said you need much higher yield increases to call the start of a bond bear market, and inflation is still very low and economic strengthening in the US and elsewhere is unconvincing.

Bill Gross at Pimco says fixed income’s three-decade bull market is over, but likes Treasuries that mature in 5-to-10 years as there will be no tapering for now.

Tom Fitzpatrick at Citigroup said a price that is 2 standard deviations away from its long-term level is considered extreme and excessive and may suggest a market turn. Standard deviations greater than one occur 32 percent of the time and 2 standard deviations 5 percent over any given time. Fitzpatrick said that while yields have been falling for 32 years, all indicators suggest we are not at that turning point yet, and expects Treasury yields to set fresh 2013 lows in half2.

Robert Tipp at Prudential Financial said investors are wary of what has historically been a freight train when the Fed acts or is perceived to be getting ready to act, buy says most of the selloff is behind us. Tipp says the US is not an island in the world economy, and most of the data coming in from major trading partners is disappointingly slow.

Zach Pandl at Columbia Mgmt Investment Advisers sees a period of sustained increases in rates because of the self-sustaining recovery as evidenced by the improvement in housing and the labor market.

The OECD said the 17-nation euro area will shrink 0.6 percent in 2013 versus shrinking 0.5 percent in 2012.

Kazuyuki Takigawa at Resona Bank says the euro zone economy needs another rate cut, maybe 25 basis points within a couple of months.

Rick Rieder at BlackRock said rising bond demand from retirees seeking regular income will help to cap yields, and there is too much demand for fixed income and for yield and not enough supply in a deleveraging world. Rieder said the population is aging and true income levels haven’t grown much, while the pressure for rates to stay low is just too great – every time rates move up, people will enter to take advantage of better yields. The number of securities rated AAA or AA in indexes compiled by Bank of America Merrill Lynch dropped to 6,168 on May 31 from 7,728 five years ago.

Willem Sels at HSBC Private Bank said the market might be getting a bit ahead of itself because while the US economy is improving, other major economies remain weak – central banks will not be happy to see bond yields rising much higher.

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