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After a volatile fortnight in the market, we appear to be closing this week in a relatively calm manner.

Our base case for rates markets is a gradual shift higher, but there are reasons to consider why even our forecast is too constructive and the move higher could be more substantial.

Following Monday’s volatility in the rates market and the subsequent “meltdown” in US equities, which saw the Dow Jones falling by more than 1,500 points intraday; yesterday had a more orderly feel to markets, and ultimately the 3 major indices in the US, the Dow Jones, S&P 500 and Nasdaq, are all still in positive territory for the year to date.

To understand this breakdown in correlation we need look no further than the source of the risk: the answer, just like in May 2013 when Bernanke gave us his taper tantrum, lies in rising rates.

Yesterday, 10yr Gilts closed at 1.510%.  Whilst that individual yield level does not sound particularly significant, in a historical context it is possibly one of the most important month end closing levels I have witnessed in more than 25 years in the markets.

Chris Bowie discusses Q4 performance of the Outcome Driven strategy and provides his outlook for the rest of the year.