The 10-year US Treasury bond yield, probably the most noted barometer of long-term interest rates in the US is near 3% today. It has been stuck in a range from 2.5% to 3.8% since June 2009 when, according to The National Bureau of Economic Research (“NBER”), the last recession ended and the recovery started. For quite some time now, there seemed to exist a universal consensus among sell side forecasters, buy side investors, and TV pundits that bond yields would soon go up and probably go up significantly. The list of reasons is quite long but varied including strong economic growth, high commodity prices, a rising deficit, the end of QE2, and US sovereign credit risk. However, the Treasury market has so far refused to validate this view. The question still remains: are bond yields too low? As we demonstrate in this note, the answer is not as straightforward as some might think. A related question is should one invest in bonds at these yield levels? The answer to this second question is not necessarily the same as the answer to the first.

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