The ease with which the 10-year yield broke the strong 185 bps barrier was simply too hard to ignore. This tells us interest rates will likely go lower before going higher. The current active range is 140-185.
We expect much higher volatility in interest rates this year as the market grapples with the prospect and timing of the Fed’s first rate hike. Our base case is for the Fed to raise rates in the third quarter. There are various reasons for the Fed to be patient. Inflation will be the biggest one. The threat of oil-related risk contagion is certainly real. We are concerned that equities have not fully priced in this threat.