US: Signs of Soaring Real İnterest Rates

Investors regard real interest rates as the starting point for the rebound of risky assets, which subsequently brought global stock markets to record highs. However, the recent surge in real interest rates has aroused investors’ alarm. UBS Group said that tight financial conditions may lead to “phase changes” in the Q2 market, leading to lower overall returns and growth stocks surpassing value stocks.

“Bloomberg” reported that last week the 10-year U.S. Treasury inflation-protected bond interest rate rose to minus 0.77% from minus 1.08% on February 11. Although higher real interest rates indicate that the economy is growing, it may lead to tighter financial conditions and changes in asset allocation.

The UBS strategist’s report stated that once the Federal Reserve lowers its support stance and the enthusiasm for inflation reaches its peak, the market driven by “liquidity” will be transformed into a market driven by “growth and income”, and the signal will be real interest rates and credit profits. Poor bottoming, etc., symbolizing the smooth end of liquidity. “Although these changes do not mean a significant shrinkage, liquidity has always been the biggest factor driving market returns, and they do make important changes in the nature of the rise.”

According to the report, if real interest rates rise slightly, it may not be a big problem, but every incremental change brings more and more challenges to the market. In the past, when liquidity changed from loose to neutral, leading to “phase changes” in the market, it would indicate that market returns were low and growth stocks performed slightly higher than value stocks; the dollar usually rose slightly against emerging market currencies, and funds flowed from the US to The attractiveness of other markets has weakened.

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