content-documents/house-oversight-nov/1c/HOUSE_OVERSIGHT_014600.md

---
title: "House Oversight: Estate Documents (Nov 12) (HOUSE_OVERSIGHT_014600)"
source: "House Oversight: Estate Documents (Nov 12)"
sourceUrl: "https://www.justice.gov/epstein"
date: "2026-01-01"
category: "House Oversight"
eftaNumber: "HOUSE_OVERSIGHT_014600"
ocrPages: 1
ocrChars: 3211
ocrElapsed: 0.0
parseTier: "external-legacy"
engine: "engine undisclosed (ep-nov-12.greg.technology mirror)"
externalSource: "greg-ep-nov-12"
externalLicense: "not granted"
externalCredit: "ep-nov-12.greg.technology"
externalUrl: "https://ep-nov-12.greg.technology"
---

Exhibit 79: US 10-Year Yields and Term Premium
Expected tapering from major central banks has contributed
to higher long-term yields and bond term premiums.
10-Year Treasury Yield
- Risk-Neutral Yield
Term Premium
Now
-1
2011
2012
2013
Data through December 31, 2016.
Source: Investment Strategy Group, Bloomberg.
2014
2015
2016
Exhibit 80: US 10-Year Breakeven Inflation Rate
and Consensus Inflation Rate Forecasts
TIPS benefited from a recovery in breakeven inflation
rates in 2016.
% Annualized
3.0
10-Year Breakeven Inflation
- 10-Year Ahead Inflation Forecast
2.5
2.0
1.5 -
1.0 -
0.5 -
0.0
2011
2012
2013
2014
2015
2016
Data through December 31, 2016.
Source: Investment Strategy Group, Bloomberg.
We think that breakeven inflation rates have
further room to rise as the concerns that depressed
them last year fade. First, oil prices are recovering,
reversing the persistent drag they had exerted
throughout much of early 2016. Second, wages are
firming and fiscal policy is being eased, dampening
deflation worries. Finally, recession odds are
falling as the drag from oil weakness and dollar
strength fades.
With breakeven inflation rates still below long-
term consensus forecasts and the Federal Reserve's
target, we expect positive total returns from TIPS
in 2017. Still, TIPS' absolute returns are likely to
be modest, as their eight-year duration will make it
difficult for coupon income to meaningfully exceed
principal losses as rates rise. Moreover, given TIPS'
unfavorable tax treatment (discussed at length
in our 2011 Outlook), we continue to advise US
clients with taxable accounts to use municipal
bonds for their strategic allocation.
We expect rates to continue to
increase, albeit at a slower pace in
2017, as many of the forces that have
restrained yields are slowly fading.
US Municipal Bond Market
Municipal bond holders were not immune from
2016's about-face in US Treasury yields. Last
October, municipal bonds were enjoying some of
their best returns in years, only to be hit by losses
arising from both rising interest rates and budding
concerns about tax changes in the wake of the US
presidential election. The abrupt redemptions of
municipal bond mutual funds only exacerbated
these losses, with the pace of outflows second only
to the mid-2013 taper tantrum (see Exhibit 81).
All told, municipal bonds suffered one of their
worst years in recent history, with intermediate
municipal bonds actually experiencing a rare loss
(see Exhibit 82).
Unfortunately, the near-term outlook remains
challenging. As Exhibit 81 reminds us, mutual
fund flows tend to be sticky in this asset class,
with persistent periods of both buying and selling
depending on the trajectory of interest rates. Based
on historical episodes, there is scope for the current
string of outflows to extend further.
Moreover, clarity on tax policy will
remain elusive for months, during which
time headline risk will be significant.
Even worse, a sizable reduction in the
top individual tax rate for municipal
bonds—if ultimately passed-could
significantly shift the economics of
owning them, leading to further sales.
These fresh worries on tax policies
Outlook Investment Strategy Group
67
HOUSE_OVERSIGHT_014600