Fixed Income

Infrastructure debt: Ready to ride on the road to rising rates

Many investors would perceive that infrastructure equity will be better positioned than debt in an environment of rising rates but our research shows that this is not necessarily the case.

04/03/2018

Clement Yong

Clement Yong

Analyst, Multi-asset

Claire Smith

Claire Smith

Investment Director

The interest rate hiking cycle is already well underway in the US and has just commenced in the UK. Although the European Central bank is likely to lag in terms of rate rises, less accommodative monetary policy is firmly on the agenda with the tapering of quantitative easing anticipated in 2018. Given this momentum, now is an opportune time to investigate the impact of rising rates on infrastructure projects.

As the paper will outline, we believe that debt is better placed than equity to navigate a rising rate environment, particularly if the rise in rates isn’t accompanied by increased economic growth. We also believe that the opportunities for infrastructure equity are becoming increasingly scarce, while there is still signifi cant opportunity for the private debt market to grow.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.