The 10-year Treasury yield rose by only a small amount during the Fed’s last major tightening cycle. But this “conundrum” was largely the result of a collapse in the term premium (TP) from a level that was much higher than it is today. We continue to forecast a steady increase in the 10-year yield as a shift in Fed policy puts upward pressure on the term premium and expectations of interest rates. Our end-2015 forecast for the yield remains 3.5%, nearly a percentage point above its current level.
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