A topic that we (and most bond market participants) have been highlighting over the last few quarters is the potential for extreme short-term volatility driven by lower market liquidity. High volatility came to fruition last week with Treasury bonds selling off sharply Monday through Wednesday before rallying sharply on Thursday and Friday. The reasons for the initial sell-off were many, including a sell-off in the European bond markets, heavy corporate supply and investor repositioning. The reasons for the rally tended to be more fundamental and, in our opinion, long lasting in nature. Specifically, another tepid report on employment gains and a weak reading on earnings growth led bond investors to push out expectations for when the Fed will raise rates. This helped our overweight to 5-year bonds, which carry the most price sensitivity to Fed action, preform quite nicely. We consistently remind ourselves to look through the short-term noise and identify lasting trends, as those trends will be the main driver of long-term performance. The trends we see are subdued growth and low inflation, which tend to treat bondholders quite well. Last week’s British elections reminded us of their famous saying “keep calm and carry on.” These words seem particularly relevant for U.S. bond investors these days.