Salient to Investors:

Derivatives traders are signaling little chance of a bear market in bonds for the next three years, because the Fed continues to flood the financial system with money to boost the economy.

William O’Donnell at RBS Securities said the focus of the Fed is still unemployment, which it sees as not good enough yet.

The median strategist expects the 10-yr Treasury to increase to 2.25 percent at year-end, below the five-year average of 2.9 percent.

Paul Krugman at Princeton sees no risk of a Treasury price bubble, saying investors are aware they won’t a positive real yield, but believe government bonds are safer than the alternatives.

Piyush Goyal at Barclays said investors are disappointed with the limited sell-offs in rates, and feeling less need to hedge higher rates. Barclays sees the 10-year Treasury yield to end 2013 at 1.6 percent.

Scott Graham at BMO Capital Markets said the higher yield trade is premature, and buying at current levels will be well rewarded in time.

Sean Simko at SEI Investments said Fed action will cap interest rates, and sees no massive sell-off and bear market.

Bill Gross at Pimco said that unprecedented global central bank monetary stimulus won’t end anytime soon, and recommends sell long-term bonds and buying 5-7 yr maturities.

Tom Graff at Brown Advisory said it will be difficult for unemployment to drop to 6.5 percent, whereas inflation is more likely to accelerate beyond 2.5 percent near term.

Ian Lyngen at CRT Capital said it will clearly take more than cheap and free money to create inflation in this environment – you need more stabilization in jobs and wage gains.

Richard Schlanger at Pioneer Investments said the Fed is the 800-pound gorilla and the ultimate buyer, so long-term rates won’t move dramatically higher.

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