The reality of interest rates is simple, despite the on-going rhetoric that attempts to overcomplicate its narrative. If the expectation for economic growth
is that it will return to pre-COVID levels then interest rates are headed higher. Period. The Federal Reserve’s confirmed dovish stance to maintain interest
rates near zero will provide no meaningful basis to assume market driven interest rates will remain low. This occurs because the Fed does not control the
10-year yield, nor does it control borrowing costs for consumers (i.e., mortgages, car loans, personal loans, small business loans…etc.). From an observed
historical basis, the argument for higher interest rates during an economic recovery provides tangible evidence that we can use. Yields rise, or fall, based
on the pace of GDP (Gross Domestic Product) growth. This is a healthy occurrence that allows the economy to substantiate higher borrowing costs amidst
an environment of strong demand, ample private job creation, and [most likely] a robust global equity market. As we look ahead to the eventual full
economic re-opening process, and as COVID vaccinations ramp up, the healthiest move for yields should be higher. This may also mean that added risk
within portfolios rests more so with fixed income investors rather than those fully participating in the equity market.
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Source: Bloomberg. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All information is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investment advice offered through CX Institutional, a Registered Investment Advisor. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.