Interest rate outlook – In a matter of a few short months, fixed income market participants have positioned at break-neck speed for a far more hawkish Fed reaction function. Despite their recent move higher, U.S. yields remain too low relative to current inflation readings, our global growth outlook, and robust economic activity. Therefore, we expect yields to continue their ascent, albeit more gradually relative to the past few weeks. Additionally, the Fed is just two months away from ending its monthly asset purchases. The Fed’s massive quantitative easing in response to the pandemic provided a powerful yield suppressant for almost two years. The removal of this demand source should contribute to yields drifting higher.
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