When Interest Rates Rise...

In a scenario of rising interest rates, the strategy to follow by investors should be of more activity.

Tuesday, January 18, 2011

Aldesa´s analysts explained in their blog, Pulse Securities, that when interest rates are falling, the investment advice is to invest soon and long-term, in order to ensure presumed higher performances than those available in the future and during the period of low interest rates. Normally this strategy is accompanied by a capital gain, as the title purchased with higher yields today it will rise in value as interest rates fall.

But when it involves a scenario of rising interest rates, the strategy to follow by the investor should be of more activity. This because as it seeks to invest in the short term, each time the investment expires, it can be reversed to better interest rates. However, this option is not very attractive because investment alternatives in the short term, or alternatively, cash, offer low interest rates.

In current scenario and for investors whose risk profile allows it, who do not want to pass on higher interest rates which normally characterizes long-term investments, needs to search for titles with relatively high yields, assuming a little more risk, having a wide margin which allows even under a scenario of rising interest rates, prices will not fall much.

Another alternative is to find markets that are conducive to economic situations characterized by low levels of risk, such as stock markets. Look for areas projected to have better economic performance during the year, and within them, the shares of firms which are more likely to grow.

More on this topic

El Salvador: Moody's Downgrades Rating to B1

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The government's inability to stop the growth of debt in the context of low economic growth and a high fiscal deficit is the reason for the reduction in the rating.

From a press release by Moodys:

New York, August 11, 2016 -- Moody's Investors Service has today downgraded El Salvador's issuer and debt ratings to B1 from Ba3 and placed the ratings on review for further downgrade.

Costa Rica: Growth in Demand for Eurobonds

July 2016

Low interest rates in the international market have favored Costa Rican sovereign debt bonds which are yielding better dividends.

Higher rates paid out by Costa Rican bonds with their associated risk level, coupled with an international context of low interest rates, has led to increased demand for foreign debt bonds, which "... have appreciated between 14% and 30%" so far this year.

IMF: Time is running out for Costa Rica

March 2016

The institution is once again emphasizing more efficient public spending and making cuts before a fiscal adjustment comes into force, in a form that is "draconian and with emergency measures".

Making cuts and improving efficiency in public spending is once again the main recommendation of the International Monetary Fund.

Costa Rica: Sovereign Debt Loses Value

December 2015

The rise of interest rates in US is one of the reasons behind the lower demand for Costa Rican debt bonds, which are perceived as riskier because they are not investment grade.

When US interest rates began to fall, international investors sought riskier options and performances, such as external debt bonds rated below investment grade in countries such as Costa Rica.

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