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The World's Central Banks Are Hiking Again
Rate hikes are spreading overseas. Here is what that means for your bonds, your cash, and two stocks.
While Wall Street stared at the tech selloff, two major central banks raised rates in the same week and a third is leaning that way. You can position for a world where borrowing costs stay high, and own businesses that earn more because of it.
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The World's Central Banks Are Hiking Again
The AI selloff and the midterms took the headlines this week, but the quieter shift may matter more for your portfolio over the next year. The Reserve Bank of Australia raised its cash rate to 4.85% on November 3, and the Bank of England lifted its key rate to 4% on November 5, its first increase in more than three years. Both blamed energy prices tied to the Middle East conflict and warned that inflation will stay elevated well into 2027. Here's why a global hiking cycle changes the math on your bonds and cash, and the two stocks built to benefit from it.
A Hiking Cycle That Crosses Borders
This is no longer a story about one central bank. The Bank of Canada raised rates to 2.5% on October 28, Norway's central bank held at 4.5% after a September hike and said it is prepared to raise again, and the European Central Bank kept rates steady on October 29 while warning that energy costs pose upside risks to inflation. In Washington, the Fed held at 3.75% to 4.00% in October, with two officials voting for a hike, and futures still put the odds of a December increase near 70% even after the stock market's drop. For you, that means the rate backdrop is set globally, not just by the Fed.
The common thread is energy. The Bank of England expects UK inflation to climb from 3.5% to around 5% by the middle of next year, and one of its nine policymakers voted for a half-point hike instead of a quarter point. The RBA pushed its forecast for inflation returning to target out by about three quarters and said AI-related investment is driving rapid price growth in technology goods. When central banks on three continents cite the same pressures, you should assume those pressures will not fade on their own.
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Why This Matters for Your Bonds
The flight to safety after the tech selloff pulled the 10-year Treasury yield back below its October peak, and it is tempting to read that as the start of falling rates. A global tightening cycle argues against you betting heavily on that. Traders now price about 76 basis points of additional Bank of England hikes by the end of 2027, and higher yields overseas compete with Treasuries for the same global savings.
That does not make bonds useless. They did their job when stocks fell, and short-term Treasury bills still pay close to the Fed's policy rate of roughly 4%. What it does mean is that you should keep your bond holdings short to intermediate and treat long-duration funds as a hedge, not a bet on rapid rate cuts.
Who Earns More When Rates Stay High
Businesses that hold large pools of other people's money tend to benefit when rates stay higher for longer. Banks earn more on the deposits they lend out and on the bonds they hold to hedge them. Insurers collect premiums upfront and invest that money for years before paying claims, so every reset in yields eventually flows into investment income. That is the side of the trade you want to own.
The opposite side matters too. Companies that depend on cheap borrowing to fund growth, from unprofitable tech to highly indebted real estate, carry the most risk if central banks keep tightening. The tech selloff already showed how quickly the market punishes businesses that need years of cheap capital to pay off, so check how many of those you hold.
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The Risk to This View
The biggest risk is a sharp economic slowdown that forces central banks to reverse course. Australia's economy is already slowing, housing prices there have fallen significantly, and its unemployment rate has risen. If energy prices fall further, inflation could cool faster than central banks expect, and rate cuts would come back on the table in 2027. Keep that scenario in mind before you load up on rate winners.
That is why this setup favors quality businesses that earn more from higher rates but do not need them to survive. If rates fall instead, you want companies whose core operations still grow, not leveraged bets that only work in one scenario.
How You Position
Keep your bonds short to intermediate. Treasury bills and short-term bond funds pay you to wait, and a global hiking cycle makes a quick drop in long-term yields less likely than the recent rally suggests.
Own businesses that earn more on higher rates. Well-capitalized banks and insurers with large investment portfolios turn higher yields into higher income, often with a dividend attached.
Be selective with growth stocks that rely on borrowing. Companies with heavy debt or years of losses ahead face the toughest math if central banks keep raising rates through 2027.
Watch Tuesday's CPI report. October consumer prices land November 10, and a hot number would push the Fed closer to joining the global hiking wave in December.
Top Picks
NatWest Group (NYSE: NWG) |
Chubb Limited (NYSE: CB) |
Setup Scorecard
Entry Zone: NWG $15 to $17 | CB $355 to $375
Target: NWG $19 over 12 months | CB $420 over 12 months
Stop Loss: NWG $13 | CB $330
Catalyst Timeline: October CPI on November 10, PPI on November 13, the Fed meeting on December 8 and 9, and the Bank of England's next decision on December 17
Confidence Level: Medium. The global hiking trend is clear, but a faster slowdown or a drop in energy prices could pull rate cuts forward, so both picks are chosen to hold up without further hikes.
Where This Leaves You
The core shift: central banks in Australia, Britain, and Canada are raising rates again because of energy-driven inflation, and the Fed is leaning toward a December hike. What it means for you: do not read the recent bond rally as the start of falling rates, and favor businesses that earn more when yields stay high. How to play it: keep bonds short to intermediate, own NatWest for a rate backdrop that just turned in its favor, and own Chubb for investment income that keeps compounding at higher yields.
That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.
Best Regards,
—Noah Zelvis
Macro Notes