2015 Fixed Income Outlook:
Navigating Today’s Pressure-Packed Fixed Income Markets
For market participants, the turn of the calendar year gives rise to a variety of themes with uncertain implications. While some represent new opportunities and challenges, others may be unfinished business. For fixed income investors, it may feel as though time is standing still. Many investors expected interest rates to rise in 2014, but instead they declined throughout the year. In fact, heading into the last month of the 2014, long U.S. Treasuries are the best performing fixed income subsector, returning over 20%. As we look toward 2015, an all-too-familiar theme seems resolute: consensus is once again calling for higher U.S. interest rates and by most measures this is perhaps the most harmonious the Federal Reserve (Fed), investors and U.S. economic indicators have been since the Great Recession. Despite this broad, directional agreement, there remains a significant divergence between how much key U.S. interest rates may rise. In our view, the disparity concerning the level of interest rates is a gauge of how close one believes the U.S. is to a self-sustaining economy, without exceptionally accommodative monetary policy. We believe this to be the key question as we look ahead to 2015.
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