With the Federal Reserve's days of asset purchases presumably numbered, many investors fear that the recent surge in interest rates signals the onset of the mother of all bond bear markets. But we don't think so.
From a long-term secular perspective, we believe that most of the decline in yields over the last thirty years is unlikely to be reversed. Past experience suggests sharp sell-offs driven by economic recoveries and fears of Fed tightening, or in this case the Fed’s “Taper,” often represent attractive buying opportunities.
Finally, after considering historical trends and the current economic backdrop, we’ve revised down our long-term yield forecast for the 10-year Treasury to 3.0% from our prior forecast of 3.5%, which we originally published in a 2003 paper. Over the near- to medium-term, however, we expect rates to remain below 3%.