October 31, 2016. By John Wolfsberg:

With the Brexit vote behind us and investor concern over repercussions of Britain’s vote to leave the EU diminishing, the bond market turned its focus to the underlying fundamentals of the US economy.

Economic data for the quarter was generally solid, with the labor market showing continued signs of strength, housing continuing to improve, and manufacturing ticking up slightly. Oil prices continued to build a strong base and seemed to settle in the high $40s to low $50s range (per barrel)…a healthy rebound from the lows of February.  As investors digested each economic release, a shift to a more positive tone in the market began – along with the prospect for higher rates. As a result of the shift in tone and a refocus on economic releases, rates backed up during the quarter, with the 10-year US Treasury yield rising from 1.47% to 1.60% at quarter end (1.83% as of this writing). It is interesting to note that the 10-year was trading at 1.79% at the end of Q1 . . . essentially all of the Treasury gains of Q2 have been given back.

For more commentary and analysis on the fixed income markets as well as our outlook, please take a moment to read our complete thoughts: Third Quarter Fixed Income Review, 2016