Understanding Interest Rates Impact

Interest rates are not just numbers… they are a reflection of an economy’s stress, stability, and strategy. Look at the extremes. Turkey at 37% and Argentina at 29% — these aren’t “high returns,” they are signals of deep inflation, currency pressure, and economic instability. When rates go this high, it means central banks are fighting to control the system, not grow it. Now compare that with developed economies. The U.S. and UK at ~3.75%, Euro Area at ~2.15%, and Singapore below 1%. These numbers reflect controlled inflation, stable currencies, and mature financial systems. Lower rates here don’t mean weakness — they mean confidence and balance. Then comes the interesting middle. India at 5.25%, Brazil/South Africa/Mexico around ~6.75%. These are growth economies balancing inflation and expansion. Rates are higher than developed markets because growth is faster — but not so high that they choke demand. This is where the real insight lies: 👉 High rates = stress management 👉 Low rates = stability 👉 Moderate rates = growth balancing And this directly impacts markets. When rates are high → borrowing is expensive → consumption slows → equity markets struggle When rates fall → liquidity increases → risk assets rally Which means, interest rates are not just macro data… They are the biggest driver of market cycles. Smart investors don’t just track stocks. They track liquidity. Because in the end, markets don’t move on stories… They move on money flow. Image Source: Trading Economics Follow Chitranjan Singh for more such insights!! #InterestRates #MacroEconomics #Investing #StockMarket #GlobalEconomy #Liquidity

Long rates are drifting higher led by real rates (chart). It’s not a problem for now - the narrative is still inflation falling, growth holding up, and cuts coming - until it is, and this is why - Long term #neutral rate has most likely gone up. Because of greater #fiscal spending, and higher rates needed to stop economy from overheating. To contextualise with numbers: fiscal stimulus boosted growth through pandemic but it also meant the US fiscal deficit widening from 3.5% late 2022 to nearly 8% now (even adjusting for student loan write-offs). It will go down a bit but not to pre-pandemic levels: for example aging population will pressure social security and healthcare spend (CBO projects a 50% increase over 20 years). US debt could rise from 123% of GDP now, to 150% by 2030 and nearly 200% by 2040. It means debt servicing could exceed Medicare budget within next few years. Practically it means we are #RiskOn now but we need to be very nimble when narrative goes from “immaculate disinflation” to “higher for longer”. It also means a preference for front end and belly of the Treasury market over long end because it is a matter of time term premium returns. I look forward to speaking to our international clients in 30 mins and US clients later today about the release of our Q2 Global Outlook.

Treasury yields are never just one number—they’re three stories at once. Using August 2025 as example, the 10-year Treasury at 4.23% breaks down into: A • 2.38% expected inflation • 0.97% expected real short rate (R*) • 0.88% bond risk premium That’s the real anatomy. Two-thirds of the yield is about inflation credibility. The rest is growth equilibrium and investor sentiment toward long bonds. History matters. From the 1980s to 2020, all three components fell—driving the great bond bull market. Post-2021, it flipped. Inflation expectations stayed anchored, but real rates and premia moved back into positive territory. That’s why bonds finally pay a real yield again, but their diversification role is weaker. Here’s the friction. Investors who still think of Treasuries as “return-free risk” are behind the curve. With ex-ante real yields near 2% and premia close to 1%, bonds contribute to returns again. But if inflation expectations de-anchor, the hit is double—yields climb, correlations flip positive, and the hedge role disappears. Global data shows the same pattern: higher real yields and premia driving the shift everywhere from Germany to Canada, with Japan as a partial outlier. Diversification isn’t dead—it’s just not as simple as “own bonds and you’re safe.” Portfolio takeaway: • Treasuries are investable again—don’t ignore them. • But they’re not a perfect hedge—pair them with other diversifiers like gold, trend, or alts. • Think global, not just U.S.—the repricing is worldwide. Would you treat bonds as a return engine or a hedge in this cycle? If inflation expectations break higher, how does your allocation shift? Do you diversify bond exposure globally—or concentrate in the U.S.? What’s your alternative hedge if Treasuries fail? For more see our Nomura CIO Corner: https://lnkd.in/e4TCax_g #Treasuries #BondMarkets #Yields #Inflation #Diversification #Nomura #CIO #Macro #Markets

Which kind of financing are banks targeting to win back business from private credit? A drop in borrowing spreads and increased investor appetite for risk has created an opening for banks to regain market share from private credit providers. - 21 companies have issued syndicated loans in 2024 to refinance $8.3 billion of debt previously provided by direct lenders based on PitchBook LCD data. -- Via these transactions, the syndicated loan market has clawed back some $19 billion-plus of loans that were repaid in favor of private credit in 2023. - Most of the borrowers are backed by private-equity sponsors and have taken out more expensive privately placed second-lien facilities in the past. -- However, some borrowers are now refinancing first-lien or unitranche debt provided by direct lenders. - More than 50% of these companies are rated B-minus or B3. -- B-minus borrowers have been taking advantage of record-low syndicated loan spreads to issue $17.3 billion of term loans for refinancing in Jan 2024. - The average spread on new or repriced loans for these lower-rated borrowers is at a four-year low of SOFR + 420 bps in 1Q 2024 compared to SOFR + 535 bps in 1Q 2023. -- These levels are significantly below typical pricing in the direct lending market, offering borrowers an opportunity to reduce interest expenses. - Refinancing examples include Groundworks and Wood Mackenzie, which are both securing better pricing with syndicated loan refinancing. - There has also been a trend of refinancing second-lien paper with first-lien term loans, with roughly $4 billion of privately placed second-lien facilities repaid in 2024. -- PCI Pharma last month issued a $440 million first-lien term loan priced at S+350 to refinance a privately placed $380 million second-lien term loan (S+700) due 2029. - More borrowers are likely to follow suit and reduce interest expenses through opportunistic refinancing in the current market conditions. - The bank-led market has also seen success in high-profile LBO deals, a segment dominated by private credit in recent years. -- Most visible example is the $5 billion credit that is backing KKR’s recapitalization of Cotiviti. That issuer had explored a deal in the private credit market one year ago, though that transaction had fallen through that time. -- Syndicated loans from banks' aggressive pricing reportedly undercut the 525-550 bps spread on offer from private credit. Banks eye low-rated refinancings to win back business lost to private credit. Krishank Parekh | LinkedIn | LinkedIn Guide to Creating

Bond yields and earnings may combine to make the case for a Fed hike this year. The 2-year Treasury yield has been above the Fed funds rate since March 10th, 2026.  Historically, the Fed follows the bond market cue fairly closely, and the rising 2-year yield increases the probability that the Fed will need to act. Every hiking cycle of the last 20 years started with the 2-year Treasury yield above the Fed funds rate. There have only been 2 occasions – 2008 and 2020 – in which the Fed moved to ease policy rates when the 2-year Treasury yield was above the Fed funds rate.  Both were clearly troubled periods for economic and earnings growth, helping to justify the need for ease. Earnings are far from troubled at this time - the S&P 500 is on track for 26.1% EPS growth in 1Q.  Since 2012, there have only been two distinct periods where growth has surpassed that, from 1Q21-3Q21 and in 1Q and 3Q18. In both those instances, the Fed was either in the midst of or just beginning a rate hike cycle. 

Despite some short-term relief from month-end rebalancing, we believe that government bond yields face upward pressure over the medium term from a supply/demand perspective. There are two duration shifts that present a headwind for government bonds over the medium term. The first duration shift has been taking place in demand and has to do with the retail impulse into bonds. The YTD pace in bond funds is tracking pace of around $450bn-$500bn, a sharp decline from the $1.36tr seen in 2024. The picture looks even more problematic for bond demand if one takes into account the duration impulse. Not only have bond fund inflows slowed sharply this year relative to 2024 but these inflows have shifted away from longer duration government or corporate bond funds towards short duration funds. In other words, there has been an even bigger decline in bond fund demand in duration terms. The second duration shift has been taking place in supply. While the duration impulse of corporate bond issuance has been flattening out as corporates reduced sharply the maturity of their issuance, the duration impulse of government bond issuance continues to rise widening its gap with corporate bond issuance. This is shown in the chart below which depicts the notional amounts of USD corporate bonds in 10y-equivalent terms along with the equivalent metric for the Treasury excluding Fed holdings. In other words, much of the duration supply has been stemming from government bonds rather than corporate bonds.

Real yields continue to climb as nominal interest rates increase while core PCE inflation decreases. This dual pressure has caused real yields to rise over 300 basis points in the past 12 months. Real yields are far more important than nominal yields in judging whether interest rates are restrictive or not. To illustrate this, consider the fact that a 4% nominal interest rate in a 7% core inflation world would encourage further borrowing rather than restrict it. As core inflation continues its downward trajectory, real rates in the United States will likely get even higher - and hence more restrictive. There is a scenario in which the Federal Reserve may have to begin cutting interest rates - not to be accommodative - but simply to avoid becoming more restrictive in real terms than they already are.

UK bond yields dropped by 0.09% the other day. Sounds boring but it could cost or save your business thousands. On paper, the fall from 4.61% → 4.52% in 10-year gilts looks like a non-event. A ripple caused by political messaging, investor nerves, or policy noise. But in reality? If you’re running a business especially one that’s growing fast this matters more than you think. Here’s how even small yield shifts hit founders: Loan & Debt Costs → Many SME and scale-up loans track bond-linked swap rates → A 0.1% rate bump on £250K = £250/year → 2-point rise over 3 years = £15K+ in pure interest This isn’t macro theory — it’s your burn rate. Team Pressure: Mortgages → Gilt shifts = fixed mortgage shifts → Higher payments = tighter household budgets → Result? More financial stress, more churn risk You can’t control rates, but you can support your team through them. Investor Confidence & Deal Terms → Higher yields = tighter capital → Valuations adjust, raise timelines stretch → Even strong revenue stories face headwinds It’s not just your deck, it’s the cost of capital landscape behind it. Pricing & Forecasting Strategy → Yields rise when inflation or fiscal doubt creeps in → That filters into: B2B: more negotiation B2C: pricing sensitivity Ops: tighter supplier terms Yield shifts = behaviour shifts Founder Insight: You don’t need to be an economist. But you do need to know what moves your margins. The best operators I know: → Zoom out monthly to check macro signals → Build buffer into every plan from CAC to COGS Even if you never say “gilts” again understanding what shapes the climate around your growth is a real advantage. If you’re planning Q3–Q4 strategy, now’s the time to pressure-test: What if borrowing costs rise 0.5%? What if customers delay payments? Do you have a real buffer or just hope? Macro isn’t the threat. Not adapting is. Are you building a margin-of-safety mindset this half of the year?

A coaching client just asked me, "𝗧𝗵𝗲 𝗙𝗲𝗱 𝗷𝘂𝘀𝘁 𝗰𝘂𝘁 𝗿𝗮𝘁𝗲𝘀 𝘁𝗼 𝟬.𝟱%. 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗲𝗮𝗻 𝗳𝗼𝗿 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿?" 𝘐𝘵 𝘸𝘢𝘴 𝘢 𝘸𝘢𝘬𝘦-𝘶𝘱 𝘤𝘢𝘭𝘭. I realized that many professionals were unsure how economic policies affect their job prospects. 𝗧𝗵𝗲𝘆 𝘄𝗲𝗿𝗲 𝗺𝗶𝘀𝘀𝗶𝗻𝗴 𝗼𝘂𝘁 𝗼𝗻 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀 𝘀𝗶𝗺𝗽𝗹𝘆 𝗯𝗲𝗰𝗮𝘂𝘀𝗲 𝘁𝗵𝗲𝘆 𝗱𝗶𝗱𝗻'𝘁 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗶𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗼𝗻𝘀 𝗼𝗳 𝘁𝗵𝗲𝘀𝗲 𝗰𝗵𝗮𝗻𝗴𝗲𝘀. I didn't want this to happen to anyone else. So, as a career strategist and former private wealth manager, I dove deep into understanding how interest rate cuts affect the job market and leveraged my insider knowledge of industry trends. I discovered that this rate cut could have significant impacts. Job creation, wage growth, sector shifts – they all matter. I decided to share these insights with you.Here's what you need to know about how the Fed's 0.5% rate cut could affect your career: - Potential increase in job opportunities - Possible upward pressure on wages - Preservation of recent labor market gains - Varying effects across different sectors - Improved conditions for career transitions 𝗕𝘆 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝘁𝗵𝗲𝘀𝗲 𝗶𝗺𝗽𝗮𝗰𝘁𝘀, 𝘆𝗼𝘂'𝗹𝗹 𝗯𝗲 𝗯𝗲𝘁𝘁𝗲𝗿 𝗽𝗼𝘀𝗶𝘁𝗶𝗼𝗻𝗲𝗱 𝘁𝗼 𝗺𝗮𝗸𝗲 𝗶𝗻𝗳𝗼𝗿𝗺𝗲𝗱 𝗰𝗮𝗿𝗲𝗲𝗿 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀. 𝗕𝗲𝗰𝗮𝘂𝘀𝗲 𝗲𝘃𝗲𝗿𝘆𝗼𝗻𝗲 𝗱𝗲𝘀𝗲𝗿𝘃𝗲𝘀 𝘁𝗼 𝗯𝗲 𝗽𝗿𝗲𝗽𝗮𝗿𝗲𝗱. And everyone deserves a chance to thrive in changing economic conditions. Remember, economic shifts create both challenges and opportunities. With the right knowledge, you can navigate these changes successfully. 𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐲𝐨𝐮𝐫 𝐭𝐡𝐨𝐮𝐠𝐡𝐭𝐬 𝐨𝐧 𝐭𝐡𝐢𝐬 𝐫𝐚𝐭𝐞 𝐜𝐮𝐭? How do you think it will affect your industry or career plans? #FederalReserve hashtag#JobMarket #EconomicPolicy #CareerDevelopment #ProfessionalGrowth

The Fed did not increase rates. Is it important? The real question should be how to position financially based on Fed monetary policy. Today, we held an interesting discussion with our portfolio managers - Juan Xavier Sanchez, CFA, and Jose Luis Cova. I will share some highlights, explain how we position investment portfolios, and advise clients.   Our analysis suggests the Fed is looking at core inflation and wage growth as the key metrics for their approach to rate increases and liquidity in the economy. Why? Core inflation includes shelter (real estate), medical expenses, and transportation, which tend to be ‘sticky’ in nature, meaning they take longer to change. Food and energy are excluded because of their volatility and cyclical nature. Wage growth spiked during the last two years, fueled by low unemployment. A strong labor market is a good sign of a healthy economy, but too much growth can cause higher inflation. According to the Federal Reserve Bank of Atlanta survey, wage growth spiked in the summer last year by about 6.7% and decreased to about 5.3% this summer. How are we positioning investment portfolios? In equities, we favor companies with strong balance sheets and cash flows that help them avoid financing at high rates. In terms of fixed income, keep a relatively short duration. We are not going long because the market isn’t compensating enough for the risk; interest rate and credit risk are involved. Alternatives have been a key focus for our portfolios. We have been finding great opportunities in the private credit space, including loans to corporations and real estate. The yields are attractive, and the volatility is much lower than in public markets. How are we advising regarding family finances? With high rates, it makes sense to be a lender, not a borrower. It used to be the other way around for many years. It might sound simple; the problem is that these changes take time, and personal issues are involved. For example, families looking to buy a home with a mortgage today must spend much more. Today, it seems better to put more money down and less debt than a few years ago.   Some families had a line of credit against their investment portfolio and could get a loan for less than 2% a few years ago. The problem is that these loans have variable rates, and today, they cost about 5% more because of Fed hikes. Does it make sense to hold fixed-income securities that yield lower than the line of credit? Even equities, is the expected return worth it once you adjust for risk? In closing, the evolving monetary policy landscape requires a proactive approach to both investment and personal financial planning. We're in an era of transition, with the Fed's actions permeating multiple facets of the financial world. While rate hikes can be a tool to curb inflation, they also underscore the significance of adapting one's financial strategies in line with the broader economic climate.