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Concern rising over possible interest rate spike, Milken speakers say

Steven Tananbaum, chief investment officer and founding partner of GoldenTree Asset Management LP

There is rising concern that interest rates could spike quickly if pushed by inflation, negatively affecting investors' portfolios, said speakers at the Milken Institute Global Conference in Beverly Hills, Calif. The anticipation of a sudden rise is a change from the gradual increase that has been anticipated over the past few years, they said.

Recent wage growth is among the factors causing some industry executives to think inflation could rise, panelists said. The end of the so-called "Trump bump" stock market rise that continued after Donald Trump's election also could push up interest rates faster than expected, said Steven Tananbaum, founding partner and chief investment officer of credit manager GoldenTree Asset Management, speaking on a panel Monday.

In a separate panel on the credit market outlook, Sir Michael Hintze, founder, CEO and senior investment officer at CQS, a credit-focused multistrategy asset manager, said he started investing in the 1980s when interest rates were high.

"Those were rates. This (potential rate hike) one is for wimps," Mr. Hintze said.

However, he added his firm is hedging against the possibility of a rapid interest rate hike.

Speaking on the same panel as Mr. Hintze, Ilfryn Carstairs, partner and co-CIO of credit and private equity manager Varde Partners, said that what would worry him would be a sharp step up in rates along with a loss of control on inflation.

Taking a look at what was learned from the Great Recession, Jonathan Lavine, co-managing partner of alternative investment firm Bain Capital, said nobody is quite certain how the unwinding of quantitative easing will turn out.

"Rates can rise for bad reasons because they're taking off QE and it's never been done before," Mr. Lavine said on the panel. "It's very early in an experiment ... What worries me are interest rate spikes, LIBOR spikes."

During an interview at lunch also on Monday, Treasury Secretary Steven Mnuchin acknowleged inflation will play a role in the interest rate increases.

"The market expects rates to go up," Mr. Mnuchin said. "It's a question of how fast and how far; in part in depends on inflation."

However, if interest rates do go up it could be because the economy is doing better "and that is a good thing," Mr. Mnuchin said.