Interest Rate Hikes: How Expectations of Higher Rates Impact Stocks and Precious Metals

Recently, discussions about an increase in the benchmark interest rate (Selic) have gained momentum in the economic landscape. Although talks around 'higher for longer' or a 'bond sell-off' may seem confined to fixed-income markets, movements in interest rates and their expectations tend to spread across other asset classes as well. An interview with economist Mohamed El-Erian provides a clear understanding of this phenomenon. A key point is that the relationship between bond prices and yields works inversely: when investors sell bonds, prices fall and yields rise. El-Erian highlighted a specific mechanism behind the recent global sell-off, which is crucial to understand: the growing imbalance between the amount of debt issued by governments and companies versus the number of reliable buyers available to absorb it. He argued that this matters more than commonly cited explanations such as inflation concerns or doubts about central bank credibility. Specifically, he mentioned examples of traditionally reliable buyers becoming less dependable: China reduced its willingness to hold US government debt due to geopolitical reasons; Asian and Middle Eastern sovereign wealth funds are dealing with their own domestic pressures; and Norway’s sovereign wealth fund is reconsidering its allocation to US bonds altogether. While none of these factors are decisive on their own, together they illustrate how a shrinking buyer base can exert sustained upward pressure on yields, not just sentiment about inflation.