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Why the Fed’s predictable interest rate rises make high-yield bonds and even equities look attractive
Tai Hui says a modest rate increase every quarter should not rattle markets, but it will prompt a look beyond safer fixed-income options
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Thus far, 2018 is shaping up as a challenging year for investors. By the end of May, global equities delivered zero returns, compared with 10 per cent for the first five months of 2017. The Hang Seng Index was up 2.7 per cent in the year to date. Things are even tougher for fixed income, with US government debt and global corporate credit in negative territory on returns. Emerging market debt started the year well, but a stronger US dollar in recent months has put significant pressure on some markets, such as Argentina, Turkey and Brazil.
Higher interest rates in the US, led by policy changes from the Federal Reserve, are behind this challenging environment. A key question for investors now is: what will the Fed do in the second half of 2018?

A piece of good news is that the Fed policy outlook is boring and predictable. In recent years, the central bank has improved significantly on communicating its policy intentions to minimise volatility.
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