Since the Trump victory bonds
The Trump victory has been attributed to the short term rise in rates but there is more to it than that. The Federal Reserve bank has repeatedly cautioned that raising rate before the election would tend to show political preference and many members agreed with the hands off stance. Even though a Trump victory has been seen as beneficial for higher rates, we must also note that the Fed has given the "all clear" to begin a gradual rate hike. With these two factors in mind the bond market has adjusted, and done so very quickly. Is this the new norm for rates or is there further to go?
One thing that bond prices have historically overreacted to is the change in rates, in particular the anticipated rise in rates. The bond markets move as if there will be a significant rise in rates by the Fed. At no point has the Fed said that they would even consider a dramatic or significant rate adjustment. This means a quarter point, or half point is the likely path forward. As of this writing the bond market has priced in about a 1 point rise in rates. That is highly unlikely to happen at the next meeting.
With this in mind many feel that this is a short term bottom opportunity. Analysts have been careful not to forecast out much further than 2017 as there are just too many unknowns. While optimism runs high at the moment for Trump, we have seen how that can change on a dime and quickly lead to panic.
One thing seems to be certain. Rates are headed higher in the short term, like it or not. Trying to guess what happens much beyond that is purely that...a guess.
