US Treasury bond yields are likely to head towards historical norms over the next three years as interest rates rise in a steadily improving American economy.That is the view of Cliff Corso, CEO of New York-based fixed-income manager Cutwater Asset Management, who gave a lunchtime presentation to an international business audience in Hamilton last week.Mr Corso, whose clients include Bermuda insurers and whose company has around $30 billion of assets under management, said that over the next three years he would expect the yield on ten-year US Treasury bonds to climb to between four and 4.5 percent, a significant rise from today’s level of about 2.5 percent.He added that the US was going through what appeared to be a “Goldilocks recovery”, with steady economic growth of two to 2.5 percent and low inflation, conditions that would encourage the continuation of loose monetary policy by the US Federal Reserve.Mr Corso said there had been a tendency for markets to treat bad news as good news, rallying on disappointing economic data on the grounds that it meant quantitative easing would continue. After Federal Reserve chairman Ben Bernanke last month hinted that the central bank would taper its $85 billion a month rate of bond buying before the end of this year, there was a knee-jerk, panicked reaction in the markets with stocks and Treasury prices plunging, and there has been high volatility since.“I hope that when the dust settles, good news will be good news again,” Mr Corso said.Among the challenges ahead for the markets, Mr Corso highlighted the possibility that interest rates could rise faster than expected as the Fed unwinds its money-printing programme.The glut of “easy money” had inflated bond prices, he said, but he added: “It’s not a bubble if the air can come out of the balloon slowly — but there may be a pin around somewhere.”One of the biggest challenges Mr Corso sees ahead is the huge national debt of the US States and what he called the “just-in-time US fiscal policy” and the “tsunami of debt” the country will have to manage in the coming years.He said decisions made in the near future would determine America’s debt-to-GDP ratio. If tough decisions were not made, debt to GDP could soar to 200 percent by 2030. “We’re playing with matches,” Mr Corso. “However, I think we have the ability to solve it.”