It’s Not Just Stocks—Promise of Rate Cuts Lifts Wide Range of Assets

Stocks and government bonds aren’t the only assets getting a boost from an expected wave of central bank stimulus.

Investors are piling into everything from haven currencies and gold to asset-backed securities, betting they will benefit from central banks’ attempts to sustain a decadelong economic expansion. 

The rush to get ahead of the expected policy shift has spurred some unexpected—and in some cases unwelcome—moves in asset prices.

A weak eurozone economy and expectations that the European Central Bank will ease policy in coming months has pushed investors out of the euro and into the Swiss franc, a popular haven currency.

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The franc has risen more than 4% since late April and now stands at its strongest level in two years, an unwelcome development for Swiss authorities concerned that the currency’s strength will hurt growth by making their country’s exports less competitive abroad.

“We doubt that any of these factors pushing up the franc will abate anytime soon,” analysts at Capital Economics said in a note to clients.

Rising trade tensions and political uncertainties are likely to keep lifting the franc and push Switzerland’s central bank to respond by cutting its own rates further into negative territory, analysts at Capital Economics said in a note to clients.the note said.

The yen, another frequent target of nervous investors, has risen against the dollar even though the

Bank of Japan

’s expected easing would tend to pull it lower.

Meanwhile, gold is hovering near its highest level in six years as the prospect of easier global monetary policy burnishes the allure of owning the metal, which struggles to compete with yield-bearing assets when rates rise.

Central banks have purchased nearly 250 tons of gold this year through May after hoarding over 650 tons during 2018 in their biggest buying spree in decades, according to data from the World Gold Council and TD Securities.

Central banks “probably want reserves in assets other than the dollar,” said Bart Melek, head of commodity strategy at TD Securities. “They may be concerned over massive U.S. budget deficits and believe the Fed could be fairly aggressive in cutting rates.”

Testifying before the Senate Banking Committee, Federal Reserve Chairman Jerome Powell again signaled that the central bank is ready to cut interest rates later this month. Photo: AP

At the same time, tThe billionaire investor Ray Dalio became the latest high-profile fund manager to tout gold as a hedge against market turbulence in a blog post earlier this month.

Emerging markets have also rallied, as forecasts for lower rates in the U.S. raise the appeal of the boom-and-bust asset class, where investors take on comparatively higher risk for bigger paydays.

The MSCI Emerging Markets Index of equities is up nearly 11% from its 2019 lows, while an index of currencies is up close to 3%.

Growing confidence among investors that the Federal Reserve will cut rates this month has bolstered the appeal of some debt linked to the U.S. consumer.

Last week, several sales of bonds backed by the cash flow from auto loans drew robust demand from investors, allowing banks to reduce proposed interest rates on the bonds.

General Motors
Co.

, for example, sold triple-A-rated bonds at a yield of 2.244%, or 0.23 percentage point above the benchmark eurodollar synthetic forward rate. That was down from earlier guidance of a 0.25- to 0.27-percentage-point spread, according to Finsight.

Asset-backed securities tend to be short-term bonds with yields that are closely tied to rates set by the Fed. When investors think the Fed is going to cut rates, it can make sense to buy asset-backed securities sooner rather than later to lock in higher interest rates.

“There was hesitation maybe a month ago. Are we really going to get a rate cut? Does it make sense for spreads to go tight?” said Henry Song, a portfolio manager at Diamond Hill Capital Management. Those doubts, though, have largely dissipated, he added, and that has benefited companies including GM, which have been able to obtain low financing costs.

Write to Ira Iosebashvili at ira.iosebashvili@wsj.com and Sam Goldfarb at sam.goldfarb@wsj.com

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