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Treasury yields have further to fall

We continue to expect the 10-year US Treasury yield to hit 2.5% by year-end. Admittedly, the Fed’s second round of quantitative easing (QE2) draws to a close this month, there are concerns that “surplus” global savings may soon dry up, and the US public finances are in dire straits. But we think there are strong reasons to think the recent rally will continue.

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