Salient to Investors:

  • The longest-dated Treasuries yield less than half the 6.8% average over the past five decades but are in line with the norm for the prior half-century.
  • David Jones said the notion that Treasury yields are too low is shaped by players who began their careers in the wake of runaway inflation in the 1970s and 1980s. Jones said we have come full circle, and may be in more normal territory than we thought we were.
  • Economists and strategists predict 3% GDP growth and long-term T-yields at 3.88% in 2015, compelling the Fed to raise rates in Q2, 2015.
  • Lacy Hunt at Hoisington Investment Mgmt said lackluster demand and inflation will keep yields low for years to come as the US contends with record debt levels. Hunt said that over time, bond yields are driven by inflationary expectations – so with all inflationary expectations out, we are going down to 2% on the long bond over the next several years.
  •  GDP growth has averaged 1.8% a year since 2009 versus almost 4% in the seven expansions dating back to the 1960s.
  • Based on bond yields, inflation expectations over the next 30 years have fallen below 2 percent and reached a three-year low of 1.96 percent at the end of last month.
  • Ray Stone at Stone & McCarthy Research Associates said forecasters have continued to anticipate higher borrowing costs partly because recent history has been marked by periods of elevated inflation – what prevailed before the 1970s is probably more indicative of the norm.
  • Bill Gross at Janus sees at least a halt of asset appreciation engineered upon a false central bank premise of artificial yields.
  • In July, Paul Tudor Jones said the bubble in debt globally will burst.
  • Stewart Taylor at Eaton Vance Mgmt said we are in a transition period between secular bull and bear markets in bonds.
  • JPMorgan Chase estimates European and Japanese central banks will buy $1.1 trillion of debt in 2015 to support demand.
  • Jennifer Vail at US Bank Wealth Mgmt said the structural shift related to globally low yields is driving a lot of money into our market.
  • A price war between OPEC and U.S. shale oil drillers is likely to keep inflationary pressures tied to energy from building.
  • David Robin at Newedge said that as long as inflation stays a non-story, we are not going back to those elevated yield levels.

Read the full article at

Click here  to receive free email alerts of the latest forecasts.