Mackenzie Minute: April 21, 2017
Movin Mokbel, Portfolio Manager on the Mackenzie Fixed Income Team, discusses the impact of rates on the Mackenzie Floating Rate Income Fund.
MOVIN MOKBEL: Over the past four or five weeks, we’ve had declining rates. Yield on the US 10-year treasury is now at about 2.2% down from over 2.6% in mid-March. This is a reflection of some of the caution we’ve seen in markets after Trump was unsuccessful at pushing through some of his main policies, in particular on immigration and health care. Investors are now questioning his ability to pass through legislation on even bigger policies that would impact markets, especially on tax reform and financial regulation.
We’re closely watching what the US Fed will be inclined to do in June. Trump said he wants to see lower interest rates and a weaker US dollar. Interestingly, if you look at economic data out of the US for March, they were all rather weak. Nonfarm payroll, inflation, retail sales were all below estimate. Will the Fed raise rates in June given this uncertainty? We shall see. Our view is they won’t and they will act later in the year.
Rising rates late last year had a positive impact on floating rate loans. This has actually continued even as rates now decline. We’ve had so far in 2017, good inflows into loans, with close to $15 billion coming in. We have 7% yield in our fund, which is actually higher than the yield in the high yield market. We’re not necessarily looking for rising rates to get higher yields. Our fund is a tactically managed, flexible mandate, with a 7% current yield, some price appreciation and little interest rate risk.