Future monetary tightening and the prospects for Treasuries

There have been seven major monetary policy tightening cycles in the US since the early 1970s. If these are a useful guide, the ten year Treasury yield will start to rise well before the first increase in rates in the next cycle. But provided the first rate hike does not occur until late 2014, a substantial rise in the ten year Treasury yield is unlikely before the end of 2013. This is a key reason why we expect the ten year yield to remain firmly anchored around 2% throughout our forecast horizon.