Taxable 1Q21 Market Review & Outlook

April 13, 2021 — Fixed income had a rough opening quarter to start the year, and while we expect the recovery to keep upward pressure on rates in 2021, the pace of further upward moves is likely to be more measured into the second quarter. The growth story is quite robust, but the move in rates has been fast and markets are already pricing in a considerably more aggressive hiking time table than what the Fed’s own “dot-plot” suggests. Investors will be focused on inflation as a signal for an overheating economy, and despite the move in near-term inflation expectations, medium-term inflation forecasts have hardly moved. Finally, given the relative attractiveness in U.S. yields and the overall demand for yield, we expect technical factors to be supportive in containing rates.