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Neuberger: A story of real interest rates
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The Corner
Report by NeubergerMovements in interest rates this year have been driven primarily by the rise in real interest rates rather than by an increase in inflation expectations.
Real interest rates stand at around 2.25 per cent, well above the levels seen in the period following the global financial crisis (GFC), although still below the thresholds that have historically led to significant stress on risk assets.
Historically, real interest rates of between 3% and 4% have represented a risk zone for the markets.
Furthermore, the Fed’s new leadership may choose to buy time through working groups, communication more focused on balance sheet management and less explicit forward guidance, rather than acting swiftly on interest rates.
This revision reflects the risks associated with rising real interest rates, sensitivity to duration and credit spreads that remain at very tight levels.