March 7, 2018 / 12:33 PM / 3 months ago

Markets have 'limited capacity' to absorb interest rate rises: Amundi

LONDON (Reuters) - World markets have “limited capacity” to absorb higher interest rates, asset manager Amundi said on Wednesday, warning that a 3.5 percent yield on 10-year U.S. Treasuries risked another market correction.

Pascal Blanque, chief investment officer at Amundi, one of the world’s biggest asset managers with 1.4 trillion euros under management, said February’s volatility spike was a wake-up call for investors and progressive monetary policy tightening could lead to more volatility.

“We have seen that markets may have limited capacity to absorb higher rates. In our view, a 3 percent yield for the 10-year U.S. Treasury is a warning level, and 3.5 percent is clearly an alert threshold,” Blanque told clients.

“If reached too fast, this is unlikely to be sustained without a second wave of market correction.”

Blanque added that an aggressive and rapid rise in interest rates would impact price valuations, pressuring indebted companies and earnings as well as emerging markets.

The U.S. 10-year Treasury yield was trading at 2.85 percent US10YT=RR on Wednesday.

Reporting by Sujata Rao; editing by Dhara Ranasinghe

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