Investors could be pardoned if they have whiplash, but the fact is that interest rates go through paradigm shifts. Indeed, they just migrated from a decade of ultra-low levels back to what may be a sustained period back “home” in their long-term 3-5% range.

Just as investors never caught up with the 40-year secular decline in rates, the inverted curve could be with us for some time, leaving a boon for yield-curve strategies. Furthermore, with the vast majority of rate hikes behind us, market volatility is set to fall. A reemergence of the “search for yield” is likely to follow, providing a tail wind for spread product and further boosting returns.

These newly restored higher yields should fuel a continuation of the bull market that began in Q4 2022, one driven not by a rapid drop in yields, but simply driven by yield itself.

After all, in bonds, yield is nearly destiny.