Waiting for a crisis that never came.

Financial Adviser, November, 2005

Back in June 2003, the yield on US Treasuries fell to just over 3 per cent. Bond market investors were convinced that economic meltdown was just around the corner for the world's largest economy and for the rest of the globe too.

Bond markets braced themselves for Japanese-style deflation. But the deflation never came and the US economy has grown at an impressive rate since then.

Despite the strong economic growth, an oil price shock, successive rate rises from the Fed and a generally reflationary backdrop, Treasury yields remain at levels that many economists would argue are inconsistent with these economic fundamentals.

If the yield on a conventional government bond comprises three components -- real trend growth, inflation expectations and...

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