Bond Market Focus: Yield Curves and Mean Reverting Rate Expectations

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October 7, 2025 - Antti Ilmanen Topics - Fixed Income Asset Allocation Unlike in equity markets, where investors and analysts tend to extrapolate returns even at long horizons, in bond markets investors and economists exhibit mean-reverting rate expectations. There has been a decades-long debate on whether the evolving yield curve shape mainly reflects the market’s rate expectations or time-varying term premia. The answer is shifting towards rate expectations, even if those expectations were wrong for decades—predicting rising rates which did not materialize. The new debate is whether those rate expectations were irrational or reflected rational learning when investors faced repeated one-way surprises. Bond Market Focus: Understanding Treasury Yields with Survey Data White Paper - September 17, 2025 White Paper - September 17, 2025 Why Are Bond Investors Contrarian While Equity Investors Extrapolate? White Paper - May 27, 2025 White Paper - May 27, 2025 How Do Investors Form Long-Run Return Expectations? White Paper - April 28, 2025 White Paper - April 28, 2025 Inversion Anxiety: Yield Curves, Economic Growth, and Asset Prices Alternative Thinking - September 12, 2019 Alternative Thinking - September 12, 2019 This document is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and AQR Capital Management, LLC (“AQR”) to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. This document is not to be reproduced or redistributed to any other person. The information set forth herein has been provided to you as secondary information and should not be the primary source for any investment or allocation decision. Past performance is not a guarantee of future performance. Diversification does not eliminate the risk of experiencing investment losses. This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein. The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Diversification does not eliminate the risk of experiencing inv

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