Money and Me: Rising interest rates - Should you buy T-Bills, REITs, Bank Stocks or Gold?

SPEAKER_1 (0:01)

Best of Live Well with Michelle.

It's not just about money, it's about you, Money And Me, where wealth meets self-awareness. Only on Money FM 89.3.

Lance Alexander (0:19)

I can tell you this as well, I forgot to say my name, I'm Lance Alexander.

Normally, it plays with the sting, my name comes up, so I took it for granted, but I am Lance, and I'm back on radio, and it's great to be back. Now, let's talk about Money And Me. We want to talk finance, because the US Federal Reserve, as you know, raise rates again with inflation, still stubbornly high.

US Treasury bond yields are also at all time highs as well. And here in Singapore, T-bill yields are also on the rise. So what should investors here be doing? Should we put money into our T-bills that don't last for very long, they're just short duration periods, or perhaps even look at the US bond market, because some people still look at that, especially with bond yields at all time highs. Or maybe you could consider our REITs and bank holdings. Gold, another possibility because we know it has come down slightly, so is this a good time to get in there? With us is Cheng Chye Hsern, Head of Investment Provident. He's here to provide some clarity. Chye Hsern, welcome to the show.

Cheng Chye Hsern (1:32)

Yeah, hi Lance, good to be back on the show.

Lance Alexander (1:36)

So let's start with inflation. It's up, the Fed raised interest rates in mid-September, first rate hike since July 2023 It was up some 25 basis points, 3.75 to 4%.

We know US President Donald Trump isn't very happy, but the truth is inflation isn't near the 2% target, is it, Cheng Chye Hsern?

Cheng Chye Hsern (1:58)

Definitely, as you said, the key reason why the Fed hiked rates this time is inflation, and a large part of that is because of the disruption to energy supplies coming from the war in the Middle East, and that is causing a big challenge for central banks all over the world as inflation from energy comes into the economy and into the numbers. But the base case this year, in fact, at the start of the year was for rate cuts, because everybody was expecting inflation to come down. But of course, when the war started, and as we know, oil supplies, not just oil, but natural gas supplies have been heavily disrupted.

In fact, I was just looking at some news that shared Qatar, they have pushed out their force majeure for LNG shipments to Asia and Europe further out towards the end of the year, so there's going to be shortfall in natural gas. And obviously, as we can see, oil prices are now hovering above $100.

So all that is feeding into the economies all over the world, and particularly the US. We saw consumer prices in August up 3.4% from a year ago. And that's of course driven a lot by higher transport costs, higher costs to farm food because they use a lot of diesel.

So that's above their 2% target, and US inflation has been running sort of above target for 5 years now. So definitely the Fed had to act, and they did by raising rate a quarter. And I think it's not just about that one particular rate hike, but the market has been seeing that rates are going to, or the market is pricing in rate hikes in the next couple of months and maybe even into 2027 So, something like maybe three more rate hikes.

Lance Alexander (4:01)

Wow. Okay. So we know energy prices are spiking.

Like you said, geopolitical tensions, supply chain disruptions, and also the concern about El Nino, because they think it's going to be a very tough end of 2026 and right through 2027 So all this likely to push inflation high. So we are, you would say, very likely looking at another rate hike when the FOMC meets again at the end of October?

Cheng Chye Hsern (4:30)

Yeah, I think the market expectations right now, sort of like the probability that the market's pricing in hikes, I think the next couple of months, markets are pricing in with more than 50% certainty that there will be a hike in October and one in December. So we are looking at probably at least one hike in the next two FOMC meetings that are happening. So that's what the market is saying right now.

Lance Alexander (4:59)

You can join this conversation with me and Chye Hsern, who is the head of investment over at Providend. The number to call is 888-508-993.

Chye Hsern, let's talk about Singapore T-Bills and whether we should park our money there. We know investors are looking at bond yields, local and overseas. We are seeing good yields even for US two-year bonds. Higher yields mean a stronger US dollar, so it means if you put your money into US markets, you could be seeing some good returns when you bring it back to Singapore. Are you seeing that happen?