Rate Hike Ahead, Bond Model Says Sell – Forbes

"We've gotten used to thinking of a zero interest rate as normal-—it's far from normal."

-          Fed Vice Chairman Stanley Fischer

Employment figures continue to surpass analyst estimates and the trend over the last six months has been strong. Last Friday's upside surprise sent interest rates higher. It is expected that the Fed moves off its zero bound peg by September.

"June has to be on the table," adding that as the economy meets his expectations, "June would strike me as the leading candidate for liftoff" in moving short-term interest rates off their current near-zero levels… quoting Federal Reserve Bank of Richmond President Jeffrey Lacker.

Liftoff is likely just the beginning of the journey. That popular song rings louder in my head, All About That Fed. The problem with rising rates is that bonds lose money, especially when your starting place is ultra-low yields.

Confusion deepens the more you turn on CNBC. One expert shouts rates are going higher. The next argues they're headed lower. Both make a good case.

I mentioned in my outlook piece that "this is the year that interest rates will finally rise." I believe the Fed feels it is time to begin normalizing rates. Additionally, defaults in the high yield market will likely climb with the result of re-pricing risk (higher interest rates). One could argue that money ultimately moves to where it is treated best, so given the negative interest rates in Europe and relatively high rates in the U.S., coupled with a loss of confidence in sovereign bonds (Greece, Spain, France, etc.) money will rush to the dollar and into U.S. Treasury bonds (driving prices higher and rates lower).

Another might say that both Europe and Japan are beginning QE and they, like the U.S., will see improvement in their economies and be successful creating inflation. Thus, interest rates will move even higher. Will that view prove correct? Maybe. Will my view prove correct? Not sure. There are no guarantees when investing.