Hot Topic: Rising Interest Rates
As you have probably noticed, a lot has been said over the past two weeks about rising interest rates in the U.S. The 10 Year U.S. Treasury Bond has moved from yielding approximately 1.8% to 2.3% today, a not insignificant move in a short period of time.
We wanted to communicate to you that we are not surprised by the increase in bond yields and, in fact, we have been anticipating a rising rate environment as the economy and employment normalized. Thinking ahead, we started adding “unconstrained” and shorter term bond strategies a few years ago. These strategies were intended to mute the concerns of a rising rate scenario and allowed us to be opportunistic as rates rose, where we could lock in higher yields.
Looking forward, higher interest rates should actually help our clients as they work towards their long-term financial goals and retirement expectations. With the prospect of personal and corporate tax cuts, along with a promise for significant infrastructure spending, the likelihood of higher economic growth (and inflation) has increased since the election. We are watching the markets quite closely, and will continue to monitor interest rates until a time when we can return to a more traditional bond-maturity strategy. Until then, we will be hedged in our exposure to rising rates.
While financial headlines can sometimes be difficult to make sense of, it is important to remember you have a plan, a plan that is just for you, a plan that takes into account the fact that the world is a complicated place with unpredictable events happening every day, every month and every year. We thank you for your continued trust and we will continue to work hard, and intelligently, on your behalf.