Where do we go from here?

In her testimony about the outlook before the Joint Economic Committee, US Federal Reserve chairwoman gave investors further reason to believe that a rate hike is imminent and the market is now pricing in an almost certainty of a rate hike in the December 14 FOMC.

At the time of publication, the market is 98% certain that a 0.25 basis points rate hike will be announced, up from 80% two weeks ago. But what is more important for the greater scheme of things is how many rate hikes are to be expected in 2017 and the pace of the rate hikes (timing between one rate hike and another) particularly the implications this would have on the US sovereign yield curve, emerging markets and pretty much bond markets on the whole.

The dust is yet to settle after the US presidential elections, as investors and traders begin positioning and anticipating the implications of the policies of the new presidency. Inflationary expectations in the US are expected to rise under Trump, which explains in the main why there has been a sharp re-pricing in the bond market, particularly at the longer end of the spectrum.

A similar pattern has also been registered in longer dated sovereign bonds in the Eurozone,...