U.S. treasury and mortgage bonds have had a rough few weeks. The 10-year treasury hit 2.44%, which is up significantly from the beginning of November. The rise in interest rates is due to the pro-business policies that President-elect Trump intends to implement, with the idea that this will increase GDP, kick-start the economy, and increase overall inflation.

Today’s November job report was the big ticket item of the week. The report came in as expected with new job creation of 178,000 versus 180,000 expected. The unemployment rate fell to 4.60% and the U-6 dropped from 9.50% to 9.30%. The U-6 rate is defined as including all unemployed people as well as “persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the labor force”. Wage growth declined in November, which is bond-friendly and is partly responsible for the mild rally today in bonds.

Given the recent rise in rates, we are biased toward floating interest rates ever so cautiously at these levels. However, we could see the 10-year treasury yield quickly going above 2.50%, so this recommendation may be short lived.

U.S. bonds continue to rip higher in response to the new Trump administration. Further adding fuel to the fire were comments made by Madam Chair Yellen which all but confirmed a December rate increase on short-term interest rates. Her reasoning was that by not raising rates now there is a fear that the Fed will need to raise rates rapidly in the future to fend off inflation.

While there are still many worries in the world, Trump’s message has pushed yields higher in the hopes of a better economy and less regulatory business environment. The jury is out on how this will unfold given that he doesn’t take office for another two months and new policies do take time to implement.

However, at the moment, the trend is not our friend, and interest rates, especially the long end of the bond curve, continue to march higher. We are biased toward locking in interest rates at this point, but do not see the 10-year Treasury Note rising above 2.500% in the near term, and we would not be surprised to see it settle in around 2.250% to 2.300%.

U.S. bond yields rose sharply in response to the unforeseen Trump presidency. The experts had predicted a Trump victory with 20% odds going into election night. While the initial reaction to the Trump presidency was a plunge in stock market futures and plummeting bond yields, both markets quickly turned around with stocks soaring to all-time highs and bond yields rising. The thought behind the rise in stocks and rise in bond yields is that a Trump presidency will be pro-business and that the pro-growth initiatives by his presidency will finally stimulate the economy, increase wages and increase inflation.

However, Trump’s fiscal stimulus initiatives have yet to be articulated. Until his vision is clear, we cannot discount the potential for volatile days ahead in the market. With continued displeasure over the poor growth results of monetary policy over the last several years, tighter monetary policy may be in our future. If so, expect to see interest rates rise, but still remain attractive. President-elect Trump’s stance on foreign policy, immigration, and trade remain a wild card. Yet, his rather gracious acceptance speech put markets at ease with his emphasis being on economic growth, jobs, and infrastructure spending.

With rates rising so dramatically this week, our posture is to cautiously float rates due to what some experts see as an overreaction to an unexpected outcome.

On a separate note, on this Veteran’s Day, we want to give pause and thanks to our military.

U.S. bonds traded flat to mildly positive in response to the closely watched monthly jobs report. The Labor Department reported that October non-farm payrolls rose by 161,000, lower than the 175,000 expected. To date, average job growth per month has been 181,000 new jobs created per month, which is well below the 229,000 new jobs per month created in 2015. The slowdown in job growth may be keeping interest rates in check as we head into the last days of the presidential election and the final two months of the year.

One area of concern regarding rising interest rates was the data within the jobs report confirming that hourly earnings rose by 0.4%, above the 0.3% expected. This rise in earnings is an inflationary indicator. If hourly earnings continue to rise, we could see wage-based inflation pick up and this would definitely put pressure on the Fed to hike rates down the road.

Based on historical measures out of the Federal Reserve, 5% has been the mark for full employment which is measured by the Unemployment Rate. The October Unemployment Rate fell to 4.9% from 5.0%, and the U-6 number, which measures total unemployment, fell to 9.5% from 9.7%, while the Labor Force Participation Rate edged lower to 62.8% in October from 62.9% in September, still a multi-decade low. These figures continue to improve, albeit ever so slowly, and based on current employment data, we would not be surprised to see a Fed rate hike this December.

With the Fed and the Jobs Report behind us, bonds have jumped over two hurdles. With the election coming Tuesday and bringing nothing but uncertainty, it remains wise to float as long as the 200-day Moving Average holds and the 10-year Treasury note remains under 1.800%.

Fears of global inflation have nudged mortgage bonds higher this week. Even with interest rates at historical lows, the era of negative interest rates appears to be over, at least for now. All of the major 10-year Treasury Bonds (Germany, Japan, UK, and US) are all yielding positive interest rates.

Gross Domestic Product (GDP) led the economic news this week. The government reported that the 3rd quarter GDP was much stronger than expected. As with many government reports, the real valuable information is found within the report; it’s not so much about the top-line growth rate. Delving into the report’s details reveals that consumer spending slowed and corporate investment on equipment fell for the 4th straight quarter.

Our experts envision interest rates going a bit higher, but the markets seem to be getting comfortable with a 10-year US Treasury Bond trading between 1.75% to 2.00%. At the moment, we are neutral on whether to float or lock interest rates at these levels.

Mortgage bonds are slightly higher today and stocks are off their lows after a mixed-bag earnings reports hit the wires. There has been no major economic news this week and the presidential debates had little effect on the markets. Today’s session will be relatively quiet in the absence of any economic data and any glaring headlines from across the globe.

Technically, bonds continue to trade in a sideways pattern above support. While we remain biased toward locking in rates, we are closely watching the 2-year and 10-year US Treasury bonds.

Mortgage and U.S. Treasuries traded poorly this week with the 10-year U.S. Treasury closing over 1.80%. Last week we advised that we were closely watching the 10-year Treasury and that a break-out over 1.75% could mean that the 10-year Treasury could climb over to over 2.00%. Fed Chair Janet Yellen suggested she might let inflation “run hot” for a while, triggering a rate spike. Madam Yellen’s comments were not received well, and inflation is the arch-enemy of bonds, thus fueling the rate increase today. Furthermore, other Federal Reserve members have mentioned that we might reasonably expect a rate hike by the end of the year.

With rates still near historical lows, we continue to be biased toward locking in interest rates. At least for the moment, higher rates remain a possibility in government, mortgage, and corporate debt. However, we do not envision runaway interest rates given the ongoing economic and geopolitical risks around the world, not to mention the turbulence around our own upcoming presidential election.

After touching a high of 1.75% this week, the 10-year US Treasury yield retreated in response to the closely watched employment report, which came in under expectations. There were 156,000 new jobs created, which was below the 176,000 expected. The unemployment rate nudged up to 5.00% from 4.90%. Some positives in the report related to the increase in the Labor Force Participation Rate (LFPR) and a small increase in wages.

With employment being one of the two mandates of Federal Reserve (the other mandate being inflation), a closer look at the LFPR illustrates one reason the Fed has been slow to raise interest rates. Currently, there are 94 million people out of the labor force. This is a huge number and represents those who are either no longer working such as retirees, and/or those who have given up on full-time employment.

However, given the “OK” employment report, the financial experts are saying there is a more than 60% chance of a rate hike of .25% by the end of the year.

At the moment, we are carefully watching the 10-year Treasury yield. If we see yields hovering just above 1.75%, we could see rates drift higher. Therefore, we remain agnostic on where interest rates may trend and we can foresee that rates may go either higher or lower.

U.S. Treasuries and mortgage bonds closed in the red on Friday with yields worsening in response to some consumer reports that suggested inflation had increased a touch. August Core Personal Consumption (PCE), which strips out food and energy, rose 0.2%, up from 0.1% in July. Core PCE, the inflationary indicator favored by the Fed, increased from 1.60% to 1.70%. The Fed would like to see core inflation at 2.00% or higher. Further pressuring bonds was a very strong day on Wall Street with equities across the board trading nicely. Oil also had a good week of trading. Oil closed the week up trading over $48 per barrel.

As we enter the fourth quarter 2016, it will be interesting to see where rates head. There are many political and economic factors to think about: U.S. election, Japanese deflation, central bank easing, oil, low rates, etc. Based on this week’s trading, we continue to remain cautious and are biased toward locking in rates in the face of so much uncertainty.

This past week, we’ve observed ongoing dovish commentary from both the Japanese Central Bank and the United States Federal Reserve. Japan initiated the rally towards lower bond yields with its dovish statements including an announcement that it will target a zero rate 10-year government bond and negative interest rates on short term bonds to combat deflation. Here in the U.S., our central bankers punted on raising short term interest rates even though there were three dissension votes on this decision.

The decision to keep rates steady was based on continued anemic long term growth forecasts, mild inflation, and low wage growth. However, the Fed did leave open the possibility of increased rates later this year. With two Fed meetings remaining in the year, the odds of a rate increase on the short term lending rates is 60%. Some on Wall Street are beginning to become concerned that “low rates for longer” could create unforeseen bubbles in certain asset prices. We would not be surprised to see the Fed raise short term rates by ¼% before the end of 2016.

As of the time of this writing, we are cautiously biased toward locking in interest rates as has been our opinion for quite some time.