The Curve Ball

Market expectations about interest rates change because of news. This makes it very difficult to build a coherent investment strategy around a forecast.

In a recent article, Bloomberg News noted that the rally in the US Treasury market in 2014 was stronger than every economist surveyed by its journalists had predicted.

US 10-year yields were around 2.3% at the end of August, down from just over 3% at the end of 2013. Yields fall as prices rise, so those who heeded economists' forecasts and backed out of bonds missed part of this capital return.

But this isn't just a US story. Japan’s 10-year government bond yield hit its lowest levels in 16 months in late August, European bond yields tumbled to record lows, and Australian bond yields were close to their lowest levels this year.

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