Public debt in short-duration tranches has been one of the main bets of asset managers during the first part of 2023. Investors wipe the dust off classic products, which in recent years have been relegated to the background due to ultra-loose monetary policies.
Among them are Treasury Bills, which have become the investment vehicle par excellence so far in 2023 given the attractive profitability they offer. In fact, the great demand has pushed the net deposits of fixed-income investment funds to 11,400 million only so far this year, being the category that is growing the most in this regard. A golden age that is now threatened by the turning point at which the main Western central banks find themselves.
The expected pause in interest rates by the US Federal Reserve (Fed) which, for now, remains frozen in the range of 5-5.25%, without closing the door to possible future increases and the Bank’s decision European Central Bank (ECB) to raise rates by 25 basis points, up to 4%, without terminating the increases, open the way to a transition scenario. With these last two movements already discounted, the market believes that the end of this cycle is near, a situation in which the experts consulted by La Información indicate that it is time to begin a progressive change in the portfolios towards longer-duration debt.
“You have to take advantage of the latest rise in rates and bet on longer-term debt so that when inflation drops and with it profitability, you can benefit from it,” defends Víctor Alvargonzález, founder and CEO of the advisory firm independent, Nextep Finance, alluding to the fact that the drop in interest with the end of the rate hike will be associated with an increase in the price of bonds. Alvargonzález bases this argument on the slowdown in the CPI in the euro area, after moderating in May to 6.1%, reaching levels prior to the start of the Russian invasion of Ukraine and the expectation that its progress will subside in the coming months, which will lead to a pause in rate hikes “sooner or later”.
The intervention on Thursday by the president of the ECB, Christine Lagarde, in which she remarked that the crusade of the organization that she leads has not finished its crusade against the rise in prices, to advance that in July it is very possible that they will announce another increase Despite the stagnation of the economy – the eurozone is already in recession – and assuring that “it is not thinking” about stopping the escalation of the reference rates of money, does not change his perspective. In this, the managing partner of ATL Capital, Félix López, also agrees that the frightening sense of the increases has already been achieved and sees it feasible that the last escalation could occur next September.
Regarding the Fed, which has already decided to stop along the way, there is still uncertainty about whether it will return to its old tricks at the next meeting after contemplating another possible revision of the rate ceiling hike to 5.5%-5.75%. from 5% -5.25% real. After the two most relevant events of the week for investors, both the interest on the two-year and ten-year bonds eased with falls in the US, Spain and Germany. On the other hand, in the six-month tranches the trend was upward (rising profitability and falling price) in Spain and Germany, while it was reduced in the US power.
It should be noted that the reduction of the trillion-dollar balance sheet of the North American organization by 95,000 million dollars per month (around 86,800 million euros at the current exchange rate) that it has executed at this rate since September 2022 plays a crucial role in the behavior of the debt market. As on the other side of the Atlantic, where the ECB is immersed in the reduction of A situation in which experts warn that it can add pressure to the debt, since investors will demand higher interest and, therefore, it can offset part of the effect derived from the end of the monetary cycle when it occurs.