4 Risk Factors To Watch On Rising Rates

July 01, 2014

Why aren’t rates likely to head higher soon? Let us count the ways.

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Tyler Mordy, president and co-chief investment strategist of Toronto-based Hahn Investment Stewards.

At the beginning of the year, the consensus was overwhelmingly wrong that interest rates would rise in 2014. In hindsight, that was a clear contrarian opportunity. Yields have plummeted, boosting the value of a variety of income-oriented asset classes.

Where to next? Will yields return to the longer-running average—the median 10-year yield over the past 143 years is 3.92 percent—or stay low, as in Bill Gross’ “new neutral” scenario?

To be sure, the interest-rate outlook is today’s most important question for asset allocators. The direction and level of yields drives the price of all other asset classes.

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The consensus still predicts higher yields ahead. Bloomberg’s monthly survey shows that economists have not retreated from their late 2013 view—99 percent still expect higher rates for the 10-year Treasury note.

So, what’s our view at Hahn?

 

 

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