NEW YORK (CNNMoney.com) -- The waiting, as Tom Petty once sang, is the hardest part. And fortunately for investors, who've been eagerly anticipating the latest take on the economy from the Federal Reserve, the waiting is over.
Stocks and bonds have been stuck in a listless, boring trade for the better part of March. It appears that this month's market activity has been brought to you by Bisquick since it's been as flat as a pancake on Wall Street.
But that may soon change -- at least in the bond market. The yield on the benchmark U.S. 10-year Treasury, which is currently hovering around 3.7%, could finally inch higher even though the Fed is unlikely to raise its federal funds rate anytime soon.
The central bank is slowly but surely ending its so-called quantitative easing program -- propping up the housing and credit markets through the purchase of mortgage-backed securities and long-term Treasurys.
The Fed stopped buying Treasurys in October and its mortgage-backed security purchases are set to wind down at the end of this month.
The absence of the Fed as a major bond buyer at a time when Treasury is still conducting many new auctions of long-term debt should cause prices to fall. Bond prices and yields move in opposite directions, so long-term rates should drift up as demand for bonds wanes.
Throw in the fact that the reason the Fed is unwinding this stimulus in the first place is because the economy does appear to be growing again leading investors to flee from bonds into riskier assets, and you have another reason why bond rates should rise.
"The end of Fed purchases, increased supply and improving growth should eventually lift long-end yields out of the range that they have been holding for months," said John Canavan, an analyst at Stone & McCarthy Research Associates, a Princeton, N.J.-based fixed income and economic research firm.
But how high will they go?
Most experts think long-term rates could soon break through the 3.8% barrier. If that happens, a move to 4% in the next few months is also likely.
Still, a rate climb could stall after that because there is no compelling evidence of inflation or risks of an overheated economy just yet.
"Could the 10-year yield approach 4%? Certainly. Can it go to 4.5%? I don't think so. The economy isn't overly vibrant," said Joe Balestrino, a fixed income market strategist at Federated Investors in Pittsburgh.
Sure, some fear that there may not be enough demand for the new Treasurys that will flood the market in coming months now that the Fed is no longer a buyer of last resort.
But so far, bond prices haven't tanked. One key reason is that foreign central banks, particularly from China and Japan, have continued to show interest in owning Treasurys despite all the doom and gloom talk about the massive debt load in the U.S.
Joe Portera, a fixed income portfolio manager with The Hartford Investment Management Co. in Hartford, Ct., said this trend should persist as long as economic problems in Europe and the United Kingdom continue.
The worries about debt on the other side of the Atlantic dwarf the concerns about the sorry fiscal state of the U.S. -- at least for now.
"Other central banks are likely to add more exposure to the U.S. The dollar is winning the ugly contest against the euro and pound," Portera said.
All of this is good news for consumers who may be worried about what rising long-term rates could mean for mortgage rates, which tend to move in tandem with Treasury yields. The yield on the 10-year probably won't move significantly higher until the Fed finally signals it's ready to boost short-term rates.
And as long as the Fed continues to state that short-term rates will remain "exceptionally low" for an "extended period" -- which it did again Tuesday -- the market will assume that the Fed doesn't think the economy is strong enough to withstand a rate hike.
"Removing that language would be a crystal clear sign that the Fed's attitude about the economy has changed," said Balestrino, adding that short-term rates would likely climb at a faster rate than long-term rates, but that yields across the board would go up.
Of course, there are still investors who worry that the Fed's policy of keeping rates near zero for the foreseeable future is irresponsible since it increases the risk of inflation.
These fixed-income investors, a group often referred to as bond vigilantes, may be dissatisfied with how low long-term rates are and try to force the Fed's hand by selling bonds to push rates higher.
But based on where yields have been for the past few months, it doesn't look like these investors are dumping enough bonds to make their cries heard.
"The bond market is behaving in a more docile fashion than it did in the old days," said Steve Van Order, chief fixed income strategist with Calvert Funds in Bethesda, Md. "The bond vigilantes are dead and buried. Their tombstones are getting old."
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.80%||3.88%|
|15 yr fixed||3.20%||3.23%|
|30 yr refi||3.82%||3.93%|
|15 yr refi||3.20%||3.23%|
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