Surprise Rate Hike to Have Negative Impact on Credit, Shah Says

  • Fischer comments more of a ‘slightly ill-tempered dove’
  • Double-digit returns can be found in oil and gas sector

A surprise interest rate hike would have a “negative impact” on credit markets, according to Ashish Shah, head of fixed income for AllianceBernstein LP.

There’s “no question that a rate hike would make a difference” on the ongoing credit binge, Shah said Monday in an interview on Bloomberg TV. Looking “across markets, whether rates, credit, or even equities,” central banks are becoming key to these asset classes.

Comments made Sunday by Federal Reserve Vice Chairman Stanley Fischer signalling a 2016 rate hike were more those of a “slightly ill-tempered dove” than an aggressive hawk, Shah said. “I think without question they should be considering a rate hike. The real question is how can the global economy cope with this.”

Fischer made his remarks in Aspen, Colorado, on Sunday as investors hunt for clues on the timing of a potential interest-rate increase. The U.S. economy is already close to meeting the central bank’s goals and growth will gather pace as investment recovers, Fischer said, less than a week before Fed Chair Janet Yellen speaks Aug. 26 at an annual symposium hosted by the Kansas City Fed.

Shah also said companies in the oil and gas industry, where capital is scarce, offer the potential for “double-digit returns” provided fixed-income investors are careful about their choices.

“We see significant need for capital in that part of the market,” he said. “We think you can find double digit returns in the energy space, but you have to be really selective.”

The real-estate sector, particularly the U.S. residential space, is also offering opportunities for fixed-income investors as consumers have been disciplined, according to Shah.

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