Bank of AmericaRalph Axel wrote in a report to clients on Tuesday that, given the Federal Reserve's new policy framework, buyers are likely to emerge when the yield on 10-year US Treasury bonds approaches 1.5%. The current 10-year yield is around 1.28%, below the midpoint of this year's 0.905%-1.774% range.

Axel said that the Fed's flexible average inflation target framework “has a high probability of causing the Fed to stay on hold for a long time, or even cut interest rates without a threat of recession.”

Considering global deflationary pressure, 10-year interest rates “can reasonably remain very low, and are likely to remain very low throughout the economic recovery phase.”

Federal Reserve Chairman Powell's comments in Jackson Hole showed that the Federal Reserve expects the inflation rate to remain below 2% from the 12-month rolling average.

This “will help the market maintain a very shallow interest rate hike cycle”, with the peak being about 50 basis points lower than the previous cycle.

“This means that 10-year treasury bond yields will peak below the 2015-18 cycle high of 3.2%,” he wrote. Similar to the mid-1990s, “as long as the Federal Reserve adheres to the new policy framework and the anti-inflationary forces remain unchanged, the bond market can implement a 'buy on dips' strategy.”