FT's Alphaville has an excellent post by Matthew Klein on long-term interest rates, organized around Greenspan's "conundrum." The "conundrum" was that Greenspan couldn't control long term rates as he wished. Long rates do not always track short rates or Fed pronouncements. As the post nicely shows, it was ever thus.
The following graph from the post struck me as very useful, especially as so much bond discussion tends to have short memories.
If the 10 year rate had followed the pink line, you would not have made any more buying 10 year bonds than buying short term bonds. (The pink line is the forward-looking moving average of the one year rates.)
What the graph shows beautifully, then, is this: Until 1981, long-term bonds were awful. You routinely lost money buying 10 year bonds relative to buying one year bonds. It goes on year in and year out and starts to look like a constant of nature.
From 1981 until today, the actual 10 year rate has been well above this ex-post breakeven rate. It's been a great 35 years for long-term bond investors. That too seems like a constant of nature now.
Of course, inflation going down was good for long term bonds. But we usually don't think there can be surprises in the same direction 35 years in a row.
You can also see the steady 35 year downward trend in 10 year rates. Good luck seeing the "massive" effects of quantitative easing or much of anything else here.
A lot of academic papers are devoted to this risk premium in bonds, including "Decomposing the yield curve" that I wrote with Monika Piazzesi.
It is now routine to decompose the spread between long and short term bonds into an expectations component and a risk premium, with changes in risk premium accounting for "conundrums." It is also routine not to present standard errors of this decomposition. The one thing I know for sure is that there is a lot of uncertainty on that decomposition. Any risk-premium estimate comes down to a bond-return forecasting regression. We know how much uncertainty there is in that exercise.