As we close out 2016 and look ahead to 2017, this question, as it has been numerous times over the past few years, is on the top of investors’ minds. But before we opine on the direction of the bond market in year ahead, we always find it helpful to first look back and evaluate where we’ve been.
Two thousand sixteen can be characterized as having been “good not great” for the bond market. Yields fell sharply in the first half of the year, but quickly reversed in November as the prospects for stronger economic growth and inflation under the Trump administration caused interest rates to rise. In the end, a small increase in yields for most maturities was offset by income generation and gains from credit spread tightening, resulting in modestly positive full year returns.
Looking forward, we acknowledge some market forecasters are predicting that interest...
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