Interest rate crystal ball gazing has taken on a new twist, as the U.S. seems headed in a completely different direction from the rest of the world.
“Chances are they will go up in December or next year,” says Sergei Strigo, the head of emerging markets, debt and currency with Amundi Asset Management. “We are forecasting a gradual increase in the U.S. of 25 basis points. But in the rest of the developed world, it is the opposite.”
While predicting a bump in American rates, Strigo told WP
that interest rates will be staying lower for a much longer time.
But when the bump comes, don’t expect other G-10 members to follow suit anytime soon.
“The European Central Bank is talking about increasing their quantitative easing program beyond September of 2016,” he says, “and the Bank of Japan will also have to do something similar, as their economy is not doing very well at the moment.”
While rates may be headed in different directions, there should be a closing in what is now an historic differential between the U.S. Treasury and emerging market countries’ bonds.
“There are 400 basis points difference on an index spread between emerging market countries and the U.S. treasury. These levels of spread are rather high compared to historical levels,” says Strigo, “so we think that going forward there is some room for these spreads to compress 100 basis points or even more.”
But that will depend on the overall risk environment and the overall interest rates, he points out, something that received a jolt back in August when China’s announced economic showdown sent shockwaves through the investment sector.