Yields unsustainably low, but markets have not factored in this possibility
The consensus assumption is that yields on US Treasuries, by far the largest global bond market, will at worst rise by a half per cent or one per cent in the coming year. If the US, European and Asian economies perform below par, the current yield range for US treasury bonds of ten-year maturity dates, will continue at 1.5 to 2 per cent, the consensus contends
GLOBAL equity and commodity markets are currently not factoring in the implications of an unexpected steep rise in global bond yields.
The consensus assumption is that yields on US Treasuries, by far the largest global bond market, will at worst rise by a half per cent or one per cent in the coming year. If the US, European and Asian economies perform below par, the current yield range for US treasury bonds of ten-year maturity dates, will continue at 1.5 to 2 per cent, the consensus contends. Only a small minority believe that economies will grow at a rapid rate and that inflation will accelerate, causing US Treasury ten-year bond yields to jump over 3 per cent from current levels of 1.9 per cent.
A huge problem could arise, however, if the bond yields were to rise from their current "unsustainably low" levels to somewhere above 4 per cent. This could impact equity markets and cause a bear market slide, some argue.
EPFR Global, which monitors global funds, estimates that the total amount invested in bond funds at the end of last year amounted to a whopping US$4.7 trillion. This is only a small proportion of the total as McKinsey estimated that at the end of 2010, total global bond holdings amounted to over US$90 trillion.
http://www.businesstimes.com.sg/premium/top-stories/equities-face-battering-if-bond-yields-rise-sharply-20130115