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Ready for rising rates

Zavier Ong Published on Mon, Feb 27, 2017 / 11:59 PM GMT+8

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Koh Liang Choon, head of fixed income at Nikko AM Asia, says the region’s bond market is still growing fast on the back of higher demand and supply. He is raising exposure to US dollar-denominated corporate debt and may lengthen the duration of his portfolios.

SINGAPORE (Feb 24): Investors have spent most of the last two years waiting for interest rate action. The US Federal Reserve’s decision to raise the federal funds rate by 25 basis points in 2015, for the first time in nearly a decade, was probably the most anticipated financial event of the year. Then, in 2016, it took a whole year before the Fed chose to move again. This year, however, it looks increasingly likely that we will see not one, or two, but three rate hikes. And as interest rates rise, there are implications for various asset classes.

In prepared remarks to Congress on Feb 14, Fed chair Janet Yellen said waiting too long to raise the federal funds rate would be “unwise” in the light of rising inflation and stronger economic growth. Jobs data has continued to improve, with the US adding 227,000 new jobs in January. That was more than the consensus expectation of 175,000. Domestic demand is also strengthening: Retail sales rose by a betterthan- expected 0.4% m-o-m. And consumer prices increased 0.6% m-o-m, the largest monthly gain since February 2013. The y-o-y gain of 2.5% was the biggest since March 2012.