Central banks in the United States, the United Kingdom and the euro area have moved from raising rates to holding them. The debate has shifted from how high to how long, and that is a different question for investors.
A plateau is not a pivot. Cash still pays, but the reinvestment risk grows with every quarter that passes. Money left on deposit for another year may well be reinvested at a lower rate, and that cost rarely shows up on a statement.
We think the sensible response is to extend duration gradually rather than in one move. Laddering across two, five and ten year maturities locks in part of today's yield while leaving room to add if the curve steepens.
“The question has moved from how high rates go to how long they stay there.”
- 01Holding rates is not the same as cutting them, and reinvestment risk builds quietly.
- 02Extending duration in stages beats a single large move.
- 03Refinancing schedules now separate strong companies from weak ones.
Equity exposure deserves the same discipline. Companies that funded growth with cheap short term debt face a harder refinancing path than those that termed out their borrowing in 2020 and 2021. Balance sheet quality matters more now than it did two years ago.
For clients holding a mix of cash, bonds and equities, the practical step is to write down what each holding is for. Anything that no longer has a clear job is a candidate to be redeployed.