Low volatility bond market

Bond trading these days has become a pretty boring activity. Volatility is low, trading volume is low, and bond prices are pretty stable.

What’s the point? To the surprise of many, bond yields have actually declined in 2014. The 10-year Treasury yield has declined 13% so far this year. There are several reasons for this: 1) ultra low rate policy on part of the Federal Reserve; 2) uncertainty over rate of global economic growth. We believe interest rates most likely bottomed in July 2012 and we expect to see rates increase gradually as economic growth strengthens. This has implications for bond investments. We have reduced duration of our bond holdings and continue to believe this is the appropriate strategy with respect to bond investments. The time to extend duration would most likely be in anticipation of a recession, which we currently do not expect perhaps for several more years.

Link: http://www.bloomberg.com/news/2014-05-09/wake-up-bond-traders-market-is-a-volatility-free-bore.html