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What Risks Can Investors Expect in a Rising-Rate Environment?

Wells Fargo Investment Institute – March 2022

Meaningful increases in longer-term rates occurred in 2013 and late 2016, but that is a distant memory for many investors. The last short-term rate hike cycle began in late 2015 as the Fed raised rates on a slow and steady schedule. With inflation well above Fed targets there is the potential of heightened rate volatility. This report is designed to help investors anticipate risks to their portfolios if interest rates (short-term or long-term) rise.

Key takeaways

  • Rising short-term rates have a more meaningful effect on the economy because they raise the cost of borrowing.
  • Rising long-term rates have a more significant effect on fixed-income investors because they affect bond prices. Interest rates and bond prices generally move in opposite directions — when interest rates rise, bond prices fall. Rising long-term rates also have a greater effect on homebuyers because they raise mortgage rates.
  • Wells Fargo Investment Institute believes that diversification across asset classes and fixed-income maturities and sectors can help investors adapt to a rising-rate environment.

Download a PDF of this report