Market Commentary 1/20/17

U.S. government bond yields surged this week and touched their highest level since 1/3/17 as the 10-year U.S. Treasury traded above the very important psychological 2.500% mark on the morning that President Trump was sworn in.

Bond yields rose in response to several factors:

1. Inflations reports out this week confirmed an uptick in core inflation.
2. Janet Yellen, Fed Reserve President, reaffirmed that she sees short-term interest rates continuing to rise.
3. The inauguration of President Trump and the idea that more business-friendly policies will lead to an increase in inflation, as well as higher income and economic growth.

While bond yields have moved higher, there are still many skeptics who do not see interest rates rising much further. One reason is that compared to Europe or Japan, US interest rates remain very attractive. This may serve as a ceiling for how high US rates may go. The next few months will be key as the markets have moved on the promise of a better tomorrow. How the new President and his team implement the actual policy is yet to be seen and our economy is still only growing ever so gingerly.

Technically, mortgage bonds are looking weak so, for now, we remain biased toward locking-in rates due to the potential of a continued climb in bond yields.