Should investors be scared about rising interest rates?

Should investors be scared about rising interest rates?

As we write, global markets in 2021 display an unambiguous picture: Defensive assets such as gold and high grade bonds are down, while risk assets are up, led by oil and followed by stocks, gaining 4 percent in emerging markets and 2 percent in developed. Below the surface, the sector composition is equally radical: The leaderboard has shifted from the previous darlings with technology, consumer staples and healthcare replaced by energy, financials and mining.This looks like a classic “risk-on” configuration, reflecting a more robust outlook, although the returns of cyclical assets are a bit tepid. There are however two intriguing, and maybe more sinister features. First, the volatility is considerable. The venerable US 10-year treasury yield has experienced intra-day moves of up to 40 basis points, which is definitely unusual and sent shockwaves across all markets. Second, risk markets suddenly seem to be scared for the very same reasons which triggered a massive rally less than 6 months ago: better economic prospects, starting with virus containment, kick-started by fiscal stimulus, and turbo-charged by extremely accommodative monetary policies.This raises two questions: What has changed, and should we be worried looking forward?The key change is obvious and we wrote about it several