The Bond Market Rally Isn't History Yet

In view of the current bond market sell-off and talk of an imminent economic upturn, many investors seem convinced that the cyclical peak in bond prices is behind us. Economist Maury Harris of PaineWebber Inc., however, notes that both short- and long-term rates eventually fell below their recession lows in three of the past four recoveries. "Rates usually jump as a recovery develops," he says, "and then soften later, as both inflation and growth prove less worrisome than expected." Because he thinks this recovery will be particularly sluggish, Harris still expects long bond yields to hit 7.5% next year.

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