When interest rates, rise bond prices fall. From May 2013 through December 2013 interest rates rose from 1.6% to about 3.0% on the 10 year Treasury. During this period bond prices fell around 20%. The U.S. Economy is growing around 2%, generally speaking, and inflation appears to be normalizing around 2%, getting us nominal GDP around 4%. We believe as the Federal Reserve continues to taper their bond purchases then interest rates will gravitate toward a more normal level, which historically has been around 4%-8% on the 10 year Treasury. The current yield on the 10 year Treasury is about 2.8% and should approach nominal GDP.
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