The world appears to be entering a higher-rate era. Here’s who will pay the price

The recent bond sell-off is a stark reminder that the era of low interest rates may be coming to an end. This shift has significant implications for fund managers, as higher rates can erode the value of existing bonds and increase borrowing costs. Government debt issuance, which has been high, is contributing to the sell-off, as investors demand higher yields to compensate for the increased supply of bonds.

The oil-price shock has also reignited inflation concerns, which is another factor driving the bond sell-off. When inflation rises, investors demand higher yields to protect their purchasing power, which leads to a decline in bond prices. Fund managers need to be aware of this dynamic, as it can impact the performance of their fixed-income portfolios. Moreover, the prospect of higher rates could lead to a reassessment of risk across various asset classes, potentially triggering a broader market correction.

As the market adjusts to a higher-rate environment, fund managers should watch for signs of how various sectors and asset classes will be affected. In particular, they should monitor the impact on interest-rate sensitive sectors, such as real estate and utilities, which tend to be negatively affected by rising rates. Additionally, they should keep a close eye on the credit markets, as higher rates can increase borrowing costs and potentially lead to a rise in defaults. The next key indicator to watch will be central bank policy decisions, which will provide further guidance on the trajectory of interest rates.

Originally reported by cnbc.com. FundNews adds analysis for finance & markets readers.