Fixed Income in U.S. Rising Rate Environment

An Analysis of Institutional Investors’ Responses and Market Views

Institutional investors are facing the task of navigating global central bank policy shifts and their effects. In U.S. markets, this has resulted in a flattening yield curve and heightened awareness and anticipation of a U.S. rising rate environment. Using eVestment’s Public Plan IQ, Advantage and Asset Flows solutions, we analyzed the actions that U.S. public plans are taking to mitigate the downside risk from shifting and rising rates.

  • Following three rate hikes in 2017, the first two of four projected rate hikes expected for 2018 have already occurred. Although the Fed’s actions signal confidence in the economy, institutional investors will have to manage their portfolios’ interest rate and inflation sensitivity.
  • Each year, investment consultants release capital market assumptions, which detail their return and volatility expectations for a variety of investment strategies. In this paper, 2017 and 2018 assumptions were reviewed from six consultants: Aon, Callan, NEPC, PCA, RVK and Verus.
  • Some common themes in the actions taken by institutional investors are allocating more towards inflation protection strategies, searching for yield in other regions such as Emerging Markets and reviewing favorable duration.

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