Yields on 10-year Treasury bonds could fall as low as 3 percent over the next two years, if there is a slowdown in inflation and corporate profits. Some money managers think we’re entering a low-return world for bonds, stocks, and even real estate. In this low-inflation, slow-growth environment, the Federal Reserve could stop raising short-term interest rates and begin lowering them as early as the end of this year.
In this view, the prospect of low inflation and Fed easing in the near future favors investing in long-term bonds. That is, investors may want to extend maturities and lock in current yields, around 4 percent
Additional opportunities also may exist in German government bonds. Germany, like many countries in Europe, is beginning to look like Japan: aging population, weak economy. That could mean a drop in inflation and low interest rates, so it might pay to buy German bonds now, for attractive yields and potential currency appreciation. Bond funds holding German bonds include PIMCO Foreign Bond and Loomis Sayles Global Bond.
