Economic conditions support yields above 2%

The Fed is expected to tighten policy gradually

Tempering expectations for rates to move higher: Inflation is missing

Strategies to consider

How could we be wrong?

• Congress could move forward with expansive fiscal policies—tax cuts and/or increased government spending—later this year. If policies are enacted that are expected to boost growth, inflation and the budget deficit, bond yields would likely move higher, possibly testing the year’s high at just over 2.6%
• Inflation could surprise on the upside if low unemployment leads to higher wages. Market expectations are for low inflation to continue.
• The Fed could tighten policy more than the market is anticipating. Rate hikes without evidence of inflation would likely flatten the yield curve further and send bond yields lower.

Read the original article on Charles Schwab. Copyright 2017.