The U.S. bond market just exited its worst quarter in years, with Treasuries down 5.6%, corporate bonds down 7.4% and a broad municipal bond index down 6.2%.1 After shaking off the rise in inflation in 2021, a swing in the outlook for Federal Reserve policy led to a jump in interest rates this year with the 10-year Treasury yield increasing from 1.51% to 2.71% currently. The Fed entered this year only expecting to hike rates three times, leading to a year- end Fed funds rate below 1.00%. The persistence of high inflation has now led the market to price in nearly 10 hikes with a Fed Funds rate over 2% by year-end. Central banks seek to tighten financial conditions to slow growth and therefore hopefully inflation – and as shown below 30-year mortgage rates have jumped from ~3.3% at the start of the year to 5.0% currently. That should likely lead to some eventual cooling in the pace of housing price rises.

Read the full VIEWPOINTS May 2022.

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