Buying the Dip Is a Losing Strategy in Today's Bond Market

To the casual observer, U.S. economic conditions may look like more of the same. That is to say, despite solid growth and a tight labor market, inflation remains muted and bond yields are stuck in a broad range. At 2.40 percent, yields on benchmark 10-year Treasuries are well below their highs of the year of just above 2.60 percent reached back in March.

So, nothing to see here, right? Wrong. The case for higher bond yields is getting stronger by the day. The bullish argument for Treasuries has mainly rested on the recent trend of inflation data coming in below forecasts. But Federal Reserve policy makers have made it clear that they expect the trend to reverse with inflation rising to their 2 percent target.