The yield on the widely followed benchmark 10 Year US Treasury bond eclipsed 3.05% Tuesday morning May 15th and now stands at levels last seen in 2011. The rise in April’s retail sales report showing further expansion likely helped push rates higher. Stronger economic activity and the potential for inflation are forces potentially putting upward pressure on interest rates, but record Treasury bond issuance is also a highly influential factor in the other direction.
We believe interest rates will continue to rise as the US Federal Reserve pursues monetary policy normalization and the economy expands. As a result, our fixed income positions remain short duration. Bloomberg’s survey of 58 analysts projects the yield on the 10 Year US Treasury bond should reach 3.19% by the end of 2018 which would imply further price declines in longer duration fixed income.
