What Institutional Investors Think About Interest Rates

Institutional investors, interest rates: Institutional investors currently do not anticipate the end of the so-called “easy money policy” to happen soon, according to a survey conducted by Allianz Global Investors. Around 42% of the surveyed decision makers from institutional investors in over 40 countries around the world consider that central banks will begin raising interest rates to their long-term historical averages no sooner than 2016, while 30% foresee a change in 2015, and 28% at an earlier point, Allianz GI said in a statement.

At the same time, the opinions vary even more from a geographical point of view. For example, 56% of European institutional investors, which participated in the survey, consider that the rates will not go up in the next 2.5 years, while in North America and Japan higher rates are expected in 2015 with 48% of Japanese investors and 42% of North American subscribing to this point. Doug Forsyth, CIO of Fixed Income US at Allianz Global Investors had this to say:

 “Although the discussion about tapering that the US Federal Reserve introduced in June does not necessarily entail a regime switch towards rising rates, apparently there is a broadly shared feeling among investors that the economic cycle in the US is ahead the European which could possibly bear higher rates.”

According to Andreas Utermann, Global CIO at Allianz, investors analyze the monetary policy according to their particular regions, which explains the inconsistency in the answers of the surveyed. However, “given the paradigm shift in central banks’ monetary policies around the globe, it is more likely that they will be willingly rather ‘behind the curve’ than ‘ahead of the curve’ since they recognize how low rates are supporting indebted governments to grow out of their debt,” Utermann said.

This uncertainty could mean that investors will react very poorly to a sudden increase in rates, Utermann also warned.

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