NOWHERE TO HIDE WHEN REAL RATES RISE?

Despite the rebound in activity linked to the economies ’ reopening, bond re - pricing has essentially concerned US nominal rates, while real rates have fallen back to their historical lows of 2020. The risk of a real rate re - pricing seems significant in our view given that the matter of the Fed ’ s tapering will likely be the focus of attention. How to protect against a rise in real rates? We have looked at the reactions of a broad set of assets and long/short strategies to this factor. While no asset/strategy can provide a perfect hedge against a rise in real rates, the US dollar stands out as the most robust hedge, particularly in the event of a sharp correction. Turning to equity strategies , cyclical s (vs . defensive s ) and Quality L/S strategies have historically been the best hedges. But recent momentum argues in favour of Value L/S or Financials (vs. S&P   500) that have offered a better hedge of late .