In May 2020, with the 10-year Treasury yielding 0.64 percent, we argued that a sharp repricing in government bonds is coming. Given the grim economic reality at the time, this seemed like a stretch but as we like to say, the future is not always a reflection of the present.

“What if the steep, dramatic decline in the US economy is followed by an equally rapid upturn?” we asked. “What if the unprecedented speed and scale of the fiscal and monetary response, plus the effects of a continued retreat from globalization, lifts inflation past the 2 percent target that the Fed has had a tough time attaining?”

With hindsight, the secular bull market in bonds probably ended when the 10-year yield fell below 0.5 percent on March 9, 2020. That doesn’t necessarily mean, however, that we are now in a secular bear market. We wouldn’t be surprised to see the 10-year yield range-bound between 1.5 percent and 3.5 percent for the rest of the decade. 

Reviewing past monetary cycles, we observe that the 10-year Treasury yield and the Fed funds rate have peaked around the same level. In 1989, the 10-year yield was constrained by a funds rate around 9 percent. In 2000, the 10-year yield and the f