MNI BRIEF: Higher-For-Longer Rates To Weigh On Risky Assets

The rising prospect of higher for longer rates “has started to weigh on riskier asset valuations in recent months,” European Central Bank vice-president Luis de Guindos said in a speech on Monday.

Higher-than-expected inflation or lower growth could trigger market volatility and risk premia, “increasing the likelihood of credit events materialising,” he said at an event in Frankfurt.

De Guindos warned about the risks from the non-banking sector, stressing that “some non-banks remain heavily exposed to interest rate-sensitive sectors, such as highly indebted corporates and real estate”. Low levels of liquidity could expose investment funds to the potential risk of forced asset sales if macro-financial outcomes deteriorate, he added.