The Board of Governors of the Federal Reserve System raised the federal funds rate on March 16, the second 25-basis-point increase in three months, and expects a number of similar increases through 2018 (see Figure 1). This confirms a long-anticipated theme: interest rates are on the rise.
Despite expectations of this message, investors had been far more focused on finding greater yield than hedging against rising rates. Since the November elections, however, views of U.S. tax and regulatory reform spurring economic growth have coincided with a growing concern about the effect of rising rates. Interest in taking gains before they disappear is growing, and shorter-duration or floating-rate products, such as collateralized loan obligations, have drawn increasing interest.