In light of recent events that have occurred so far this year, the Anfield team believes it is necessary to update our 2021 year-end interest rate assumptions. While we are confident the US Federal Reserve will largely stay on hold throughout the remainder of the year, we are aware that the Central Bank can only directly influence the short-end of the curve and has minimal control over the long-end unless the mandate of their open market activities is materially changed.
While the team believes there is a minimal chance of rates going lower from here to year-end, we do see the potential for further steepening and accordingly are pushing our year-end interest rate outlook to a lower bound range on the 10-year of 1.50-1.75%, with the potential to hit 2.00% by year end. As stated following the delivery of our previous capital market outlook, the current market environment is an extremely difficult one to predict and as the fog of the COVID-19 pandemic “settles” we are able to assert our collective forward guidance in a more confident manner. The team believes this upward pressure on interest rates is primarily arising from:
1) Economic optimism following on the back of recent successes in the fight against the novel coronavirus, boosted by an increasing pace of vaccine rollouts and their continued proven effectiveness.
2) A strong penchant for fiscal authorities, from both sides of the aisle, to spend trillions upon trillions of dollars to prop up the US consumer and the domestic economy.
3) Relating to the first two reasons, the increasing possibility of inflationary pressures picking up and seeping into the greater economy.
As the situation evolves the team is keeping a close eye on both micro- and macro-economic pressures currently forming throughout the US and global economies that could have an impact on the yield curve and rates as a whole. Right now, we are not contemplating any material changes to our fixed income strategies, as the portfolios are positioned properly for a gradually increasing interest rate environment as outlined above. We welcome any questions relating to our outlook change and future view, and look forward to discussing with you, our client, as the situation evolves.
Anfield Capital Management
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