Tuesday's run-up in bond yields spooked investors, but the move is a side effect of markets transitioning to the new reality of higher interest rates, said Roger Aliaga-Diaz, global head of portfolio construction in Vanguard's investment strategy group.
More than a year into the Federal Reserve's policy tightening campaign, interest rates are likely to settle at a higher point compared to the pre-pandemic era, he said.
"The neutral policy rate is now higher on a permanent basis, perhaps 3.5% or 4%, and that gives you a higher floor for the 10-year bond compared to previous years," Aliaga-Diaz told CNBC.
"One it's very painful on the front end because things are resetting to these higher rates," he said.
"It could be because of uncertainty and volatility that you can see higher 4 and even 5%," he said, regarding the 10-year Treasury yield.
Persons:
Tuesday's, Roger Aliaga, Diaz, Aliaga, there's, Darla Mercado
Organizations:
Federal, CNBC