Recently, JPMorgan sent a notice to its clients that did not mince words regarding its thoughts on the direction of interest rates:
As the U.S. economy continues its expansion, we believe that U.S. interest rates will begin to rise. Many important indicators have shown notable strength of late, including unemployment, housing starts, household formation and consumer confidence. While that strength is a positive indicator for the health of the overall U.S. economy, it does also further our conviction that the Federal Reserve will likely begin to raise its policy interest rate later this year. We expect longer-term rates will follow. If that happens, these changes would have implications for both investors and borrowers.
JPMorgan continued to talk about the bond market and liquidity:
Some components of the post-2008 crisis financial services reform, which have accomplished many good things, have also in part contributed to bond markets that are less liquid. We expect that the combination of rising interest rates and less liquid bond markets may create an environment in which the ability to sell bond positions is more difficult.
The increase in interest rates has been a hot topic in 2015. The linking with bond market liquidity is an interesting twist, with higher volatility implications. “As a result, we continue to encourage borrowers to act on their real estate financings before the Federal Reserve makes a move to lift rates,” commented Michael D. Sneden, Executive Vice President of ValueXpress.