For most of the second quarter, fixed income markets were driven by the uncertainty of whether the Federal Reserve would follow through with further policy interest rate increases. The vacillation of opinion was evident in the Fed Funds futures market, where the probabilities ‘for’ and ‘against’ summer rate hikes shifted four times during the quarter.

The Fed’s first increase of the Fed Funds Rate since the 2008 financial crisis occurred in December 2015, a move policy makers justified by stronger US economic growth. However, risks from higher US interest rates and a strong US dollar (USD) reverberated through global financial markets in early 2016, requiring the Fed to soften their stance on the pace of future hikes.