Friday marked the end of a volatile month in the bond market. During May, yields rose 0.33% on 5-year Treasury notes and 0.42% on 10-year Treasury notes. Municipal bonds fared better, with yields rising 0.20% on AAA-rated 5 year bonds and 0.40% on 10 year AAA-municipal bonds. Corporate bonds saw their yields rise as well during the month of May, but to a lesser extent than other sectors of the market. The rise in rates was a reaction to better than expected economic indicators, including stronger consumer and business optimism, weakness in the Japanese bond market, growing fears that the Fed would reduce its bond purchases sooner than expected, and fears that mortgage investors would need to sell securities due to the rise in rates. While the rise in rates was much quicker than we expected, we feel there are reasons to believe that yields will not continue to rise at the same pace going forward. These include inflation being well below the Fed’s target, continued weakness in consumer spending, and an unemployment rate that continues to be much higher than the Fed’s target. In response to the move in rates, we have not changed our average maturity targets. Rather, we are treating the rise in rates as an opportunity for accounts whose average maturity has fallen below our targets to buy longer maturity securities.