There are several factors that can affect the direction of bonds for the remainder of the year. Equities have been on a positive run and are quite overdue for a correction. If and when this occurs, this would increase flows into bonds as investors would move to safety.
The Federal Reserve’s expectations of the economy have been met, which means they will continue to normalize rates and start to shrink the balance sheet if economic indicators stay on course.
The chart below shows Ned Davis Research’s valuation model with 10-year Treasuries close to fair value at 2.20. Expect to see fair value move upwards as the year progresses.
After a flow out of bonds following the election, demand has returned for bond funds and ETFs.
If the Fed raises rates in combination with the ECB tapering its asset purchases, this would mean an increase in interest rates which causes bond prices to go down.
We will continue to keep an eye on this for our investors and implement changes as needed. For now, we continue to stay the course.
Maeve Beard serves as Senior Vice President of Operations at Pinnacle Trust. She is also a member of the Investment Committee. You can reach Maeve by emailing her at email@example.com or by calling the office at 601-957-0323.