Rising rates have created interesting opportunities in corporate debt
Tom Cahill, the co-head of tactical investing at Morgan Stanley Investment Management, sees “some interesting credit opportunities” opening up for investors as companies need to refinance their borrowings in a higher-interest rate environment.
“In the general public domain, there’s the pulling of hair and the gnashing of teeth because the [Federal Reserve] has raised rates so much,” he says.
Tom Cahill says higher interest rates are creating “some interesting credit opportunities”. Louie Douvis
But he points out that people have lost sight of the fact that before 2007, “it was not unnatural” for major global banks to pay 5 per cent or more to borrow from other banks.
And although people find it “very jarring” to see interest rates climb sharply after 15 years of massive monetary easing by global central banks, “all it really is, is just the reversion to the mean”.
Of course, rising interest rates have triggered a major readjustment in asset values, particularly in markets such as commercial property.
“Real estate has always been affected by interest rates,” Cahill says. “Also there has been a massive shift in the post-COVID world. Where do you really need people to go into the office five days a week? If that is a permanent shift, that asset could potentially be worth less.”
More generally, he says, investors are trying to work out whether the rise in interest rates is a permanent change in interest rates, or merely a temporary blip as central banks get inflation under control.
“I think it is more likely than not that if you believe that you are going back, or reverting to the norm, and that this is going to have a bit of duration to it.”
Meanwhile, rising interest rates is reawakening investors’ appetite for corporate
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