(Bloomberg) -- Some Standard Chartered Plc clients are increasingly favoring tangible assets like copper and oil, an approach that worries the UK bank’s chief strategist given the possibility that US interest rates might have higher to go. 

A rally in commodities reflects a view that “something doesn’t make sense” in equity and bond markets, compounded by a backlash among investors against rising government debt and spending, according to Eric Robertsen, who’s also StanChart’s head of global research. 

“People want a larger percentage of their portfolios in non-financial or real assets,” meaning “things that you can literally physically touch,” he said in an interview in Dubai. “The risk for me is that actually inflation is going to stay higher than we thought.”

Federal Reserve officials have been voicing concern that high borrowing costs may not be doing enough work to rein in demand, increasing anxiety among investors and analysts that the US central bank may need to raise rates further.

“Maybe central banks’ next move is to hike — not cut — because they realize that actually the only way to get inflation to come down is to really slow the economy,” Robertsen said. “If that happens, commodity markets will get hit initially.”

Standard Chartered now sees one less rate cut by the Fed than it predicted earlier for this year, expecting two decreases by a total 50 basis points, according to Robertsen. Traders in the US rates market have meanwhile started to put on wagers that the Fed will refrain from easing policy altogether this year, and major banks like the UBS Group AG are raising the possibility that rates might yet go up.

Robertsen said “the last CPI report in the US was surprising to us and, I think, game changing for the Fed.”

Even though interest rates are bound to come down at some point, the “scary thing” for corporate clients and issuers is that the yield on 10-year Treasuries might not fall below 4.25% this year and potentially stay higher, Robertsen said.

“What I worry about is that actually maybe the Fed only cuts once or twice, inflation stays where it is and actually long-term interest rates keep going higher,” he said. The implication would be that the “window for people to issue and restructure and refinance is going to be very narrow,” he said.

For Robertsen, booming prices for everything from metals to energy represent “a real shift in the broader commodity universe.” 

What’s been surprising, he said, is that the costs of safe-haven assets like gold and “cyclical commodities” such as copper have rarely risen together at the same time to the degree seen in recent months, he said. 

Gold has soared this year, topping $2,000 an ounce from early March. Copper, often seen as a barometer of the world economy, is up nearly 15% this year on the London Metal Exchange, on bets that a global recovery in manufacturing — and growth in demand from new-energy applications — will spur long-term gains. 

While geopolitical risks may account for the increase in energy prices, and global growth helps explain the gains for copper, “the rally in gold is less of a function of a safe haven today and more a function that inflation seems to be staying higher for longer,” Robertsen said.

(Updates with gold, copper performance in penultimate paragraph.)

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