For bond traders, 2023 has been one of the most volatile years in recent decades. It’s not entirely surprising given the various forces impacting the market such as inflation, a hawkish Fed, a slowing economy, and significant strains to the banking system.

In a Bloomberg article, Michael Mackenzie and Liz McMormick discussed reasons why these conditions will persist for the remainder of the year. In response, investors are looking to remain nimble and flexible especially given wide swings and a risky environment. 

Bond traders are expecting this uncertainty to continue as long as the Fed continues its hiking cycle and gets clear when it will start cutting rates. A major factor in Treasury inflows has been the slowing economy as recession fears increase, however the labor market continues to add jobs, and the economy continues to expand. Additionally, the recent spate of bank failures and financial stress also was supportive of Treasury inflows. 

Maybe the best illustration of the volatility is the 2-Year Treasury yield which got as high as 5.1%, following Fed Chair Powell’s hawkish comments. And. it got as low as 3.6% a few days later amid the failure of Silicon Valley Bank.

Finsum: The bond market has experienced incredible volatility in Q1. However, odds are that this volatility will continue all year.