Few asset classes benefit from a hawkish Fed. Rising interest rates usually hurt most traditional stock and bond valuations. Given the Fed’s intent in raising short-term rates is to slow the economy, more often than not a Fed rate hike cycle has usually ended in an economic recession. Even if the tightening cycle doesn’t end in recession, a slowing economy typically puts further downward pressure on stock valuations and upward pressure on credit spreads. Treasury Bills and Treasury Money Market Funds are among the few, if not only, assets that benefit from rising short-term rates without other consequences. Floating rate debt, commercial paper, and syndicated bank loans will see their yields rise, but they will also face increased default risk as the economy slows.

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