We started 2018 with expectations of higher rates. The same factors that prompted three rate increases in 2017 also led to a string of 3.0% average quarterly GDP growth rates, a trend we anticipate to continue. As economic prospects brightened and the impact of the Tax Cuts and Jobs Act became clear, rates pushed upward, rather quickly.

Starting from 2.40%, the 10-year U.S. Treasury Bond reached 2.85% by early February, dropped to 2.70% as equity markets corrected and peaked at 2.95% in mid February. Then the trade talk started, leaving investors uncertain and unclear about how far it would develop. Until the back and-forth stops, the uncertainty clarifies or both, investors will seek the sanctuary of U.S. Treasury bonds denominated in U.S. dollars. Rates moved down and ended the quarter at 2.74%.

On balance, markets gave a taste of how interest rates can move with an accelerated growth rate and moderate inflation. Most intermediate and long-term fixed income indexes are down 0.75% – 1.50%. As with equity markets, trade uncertainty has pushed aside positive economic data and momentum. The 10-year yield will resume its path toward 3% as the trade conflict subsides.

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