At the end of 2013, everyone knew one thing: Bond yields had nowhere to go but up. Oops . The new normal may be the old normal: Long periods of interest rates between 2% and 4%, according to one analysis. The yield on the bellwether 10-year Treasury note soared to 3.03% on Dec. 31 from 1.76% at the end of 2012. The average bond fund got clobbered, because bond prices fall when interest rates rise. General U.S. Treasury funds, for example, fell 2.4% in 2013, with interest reinvested. If you lived through the period of soaring interest rates in the 1970s and early 1980s, a 3.03% Treasury yield seemed insanely low. Who on earth would buy Treasuries at those rates? Quite a few people, apparently. The 10-year Treasury yield had plunged to 2.58% Monday, as investors sought safety. Through January, U.S. Treasury funds have gained 3.3%, according to Lipper. And those who suggest that rates will climb back to their 1981 highs of 15% might want to rethink that, says Jerry Paul , chief investment officer of fixed income at the ICON funds. His argument: We could be going back to the "old normal" -- 10-year rates that stay between 2% and 4% for an extended period of time, as they did through most of the nation's history. Sound crazy? Actually, it was the interest rate spike in the 1970s and early 1980s that was crazy -- and left big psychological scars. Rates may rise, but if you're expecting 15% yields, you might just be reliving past traumas.
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