Fed Rate Rise Would Be Good for Our Business, Bond Manager Says

  • Western Asset says rising rates indicate economic strength
  • Fed's September decision gave `a pretty negative message'

One of the world’s biggest debt managers reckons a U.S. interest-rate increase would actually be good for the firm’s business.

While rising yields generally mean downward pressure on bond markets, Western Asset Management sees the prospect of the first Federal Reserve rate rise in almost a decade as an opportunity.

“We’d like to see rates rise, that’s good for our business,” said Western Asset Chief Executive Officer James Hirschmann, whose firm oversees $452 billion, speaking in Sydney on Wednesday. “If you’ve got a rising rate environment because economic activity is picking up and is getting stronger, well that should bode well for the credit sectors. You can structure your portfolio risk to mitigate a rising rate environment.”

The Fed, which slashed its benchmark to almost zero in the wake of the 2008 crisis, has yet to begin lifting interest rates even as U.S. unemployment has almost halved and policymakers have signaled their eagerness for more normal settings. The Fed disappointed some by failing to move in September, and traders are now pricing in a less than 50 percent probability of a shift before March.

Constructive View

“Our house view is pretty constructive,” Hirschmann said. “We think the U.S. is doing OK.”

Futures traders saw a 96 percent chance the Federal Open Market Committee will announce an unchanged policy stance at the end of its two-day meeting on Wednesday in Washington. The odds of an increase in December were 35 percent.

It would have been better if the Fed had raised rates back in September and its decision not to lift borrowing costs “is giving a pretty negative message” to both the market and businesses, according to Anthony Kirkham, Western Asset’s head of investments in Australia.

“I’d really like to see the Fed move just to send a message that we don’t need to be at emergency any more, we’ve actually moved on from that,” Kirkham said.

Western Asset Management’s business is about 90 percent institutional, which means the firm’s performance relative to other fund managers is key, according to Hirschmann. “If we perform well versus our benchmark and our competitors we should really do well,” he said. “We continue to see strong demand for fixed-income products.”

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