We continue to expect roughly flat bond returns for 2015, as the choppy market environment witnessed over the first half of 2015 continues.
The challenging, low-return environment confronting bond investors is likely to persist, and a slowdown in performance — even for sectors that fared well over the first half of 2015 — appears probable.
We still expect a modest rise in bond yields over the course of 2015; but an increase of 0.25% to 0.50% in the 10-year Treasury yield, the lower half of our initial forecast, appears more likely due to the persistence of low inflation. An increase of 0.75% in 10-year Treasury yields is possible, but a low probability, in our view. Disappointing first quarter economic growth and a later start to Fed rate hikes, with a slower pace of additional hikes likely, mitigates the risk of a greater rise in interest rates.