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U.S. Yields May Remain Low, JPMorgan’s Normand Says

U.S. bond yields are likely to stay at historically low levels until an uneven economy begins to normalize and there’s a steady increase in inflation, JPMorgan Chase & Co.’s John Normand said.

Investors “have just a lot of reservations about the durability of the expansion,” said Normand, JPMorgan Chase’s London-based head of foreign-exchange and international rates strategy, in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “Eventually, people’s fears will be relieved if we can go through two or three quarters of decent growth in the U.S. But it’s a very slow and tedious process.”

Yields on benchmark U.S. 10-year notes fell three basis points, or 0.03 percentage point, to 2.46 percent today in New York. They averaged 3.40 percent over the past decade, reaching a high of 5.32 percent in June 2007 and a low of 1.38 percent in July 2012.

Normand said that, taking a “very simplistic” approach to calculations, the 10-year yield may approach 4 percent in a normalized economy, figuring 2 percent economic growth in real terms and 2 percent inflation.

“You’re not going to get there in one month or one quarter or even one year,” Normand said.

The Federal Reserve will probably raise interest rates for the first time since 2006 once inflation stays around 2 percent for two to three quarters, Normand said. Projections for higher consumer prices won’t be needed.

“You just need a move to, say, two-ish, or sticking at two for a while before it begins to look like central banks have money too easily priced,” Normand said.

The Fed’s preferred gauge of inflation, the personal consumption expenditures deflator, has failed to reach the bank’s 2 percent target for more than two years. It rose to 1.8 percent in May. The central bank has maintained the benchmark rate in a range of zero to 0.25 percent since December 2008.

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