Our eye on a chart - Room for increase in US interest rates
For Professional Clients in accordance with MIFID
Written on 17th September 2021 by Seeyond
Let’s look at the facts:
- The recently published numbers in industry, services or private consumption point to improving US fundamentals. This momentum is expected to continue over the coming quarters in the wake of enhancing labor market, declining savings rate and increasing post-stimulus investments.
- Long-term rates are highly correlated to US activity, but recent data shows a gap.
What do we think?:
We believe the 6M growth rate of US long-term interest rates should come back to 0.75%, leading to 10-year interest around 2.5%
- The US bond market has experienced a series of headwinds lately. This includes negative macroeconomic surprises, positive inflows, low amount of issuance and negative risk appetite.
- Trend analysis of each of these factors indicate that they should reverse and interest rates should quickly re-correlate with fundamentals.
- Even of increasing long-term rates could increase Equity volatility, we do not believe in a sharp downturn in equity markets. The Fed should taper with patience to allow for “good” inflation building up and keep interest rates lowish for some time.
- In that scenario, productivity gains generated by investments offset the higher corporate wages.
Source: Bloomberg, Seeyond – Data from December 2007 to September 2021 – 6M change data – Monthly
This article has been provided for information purposes only to professional clients as defined in the MiFID Directive. It must not be used for retail investors. The provision of this material or reference to specific sectors or markets in his article does not constitute investment advice or a recommendation or an offer to buy or sell any security. Investors should consider the investment objectives, risks, and expenses of any investment carefully before investing. Views expressed in this article as of the date indicated are subject to change and there can be no assurance that developments will transpire as may be forecasted in this article.