Interest Rate commentary: US rate rise on the cards March 2018 looks fairly certain – June less so… - swisspartners – The art of finance
US rate rise on the cards
March 2018 looks fairly certain – June less so…
At the moment, we believe that US rates will almost certainly rise in March 2018 – especially as the American unemployment rate is incredibly low at 4.1%, a level last seen 17 years ago. Moreover, on the ground Trump supporters seem emboldened by the tax cut and despite all the media noise, US consumer confidence indicators are towards the top end of their 20-30 year ranges.
In our view, investors are right to acknowledge that Bond issuance and hence company debt levels has risen sharply in some sectors as companies took advantage of the abnormally low interest rates. Moreover, in some new bond issues financial covenants do look ‘lite’ and lower rated Non-Investment Grade Corporate Bonds could be in for a challenging time during 2018, especially as US interest rates begin to rise.
Our current sense is that many Family Offices and High Net Worth investors throughout the UK, and Europe have stayed away from the riskier end of the Bond Market in terms of credit ratings since 2007. Moreover, many established investors have also ensured that they are not over exposed to high duration, by having a bias towards short and medium dated bonds.
In summary as US rates could rise on 2-3 occasions in 2018, we believe now is the right time to have some modest exposure to shorter dated Floating Rate note bond funds and some short dated Inflation Linked exposure. Moreover, we are also mindful that investors need to be as fully diversified as possible and so we are constructive on leading Credit Specialists – especially if they have around 10-15 years of good ‘risk adjusted’ performance.
US rate rise on the cards
March 2018 looks fairly certain – June less so…
At the moment, we believe that US rates will almost certainly rise in March 2018 – especially as the American unemployment rate is incredibly low at 4.1%, a level last seen 17 years ago. Moreover, on the ground Trump supporters seem emboldened by the tax cut and despite all the media noise, US consumer confidence indicators are towards the top end of their 20-30 year ranges.
In our view, investors are right to acknowledge that Bond issuance and hence company debt levels has risen sharply in some sectors as companies took advantage of the abnormally low interest rates. Moreover, in some new bond issues financial covenants do look ‘lite’ and lower rated Non-Investment Grade Corporate Bonds could be in for a challenging time during 2018, especially as US interest rates begin to rise.
Our current sense is that many Family Offices and High Net Worth investors throughout the UK, and Europe have stayed away from the riskier end of the Bond Market in terms of credit ratings since 2007. Moreover, many established investors have also ensured that they are not over exposed to high duration, by having a bias towards short and medium dated bonds.
In summary as US rates could rise on 2-3 occasions in 2018, we believe now is the right time to have some modest exposure to shorter dated Floating Rate note bond funds and some short dated Inflation Linked exposure. Moreover, we are also mindful that investors need to be as fully diversified as possible and so we are constructive on leading Credit Specialists – especially if they have around 10-15 years of good ‘risk adjusted’ performance.