THE wait is over. All the anxiety and fears have now crystallised into one big question: Where do we go from here?

The United States Federal Reserve (the Fed) is clear where it wants to go; that is, a gradual increase in rates from here on, to take advantage of the growth in the US economy over the past seven years during which it kept rates at 0-0.25 per cent.

At the new level of 0.25-0.50 per cent, the Fed interest rate is still low, but as indicated in my last article (November 15, 2015), some analysts ­— citing the fact that the Fed-watched macroeconomic indicators were still below pre-crisis levels — felt that increasing the rate in December would have been too soon, and that it would be better if the Fed were to wait until at least the pre-crisis levels were attained.

That is now the proverbial ‘water under the bridge’. What is more important is that the Fed believes that its previous action to hold interest rates at 0-0.25 per cent had actually helped to stimulate growth in the US economy, and that despite the December 2015 increase in the rate, the economy is still expected to continue to grow at a measured pace.

With this in mind, and should the Fed be correct in its reading of the economy, we in the financial sector, and as an extension, our investor clients, can be sure to look forward to a more vibrant market. In this scenario, some bond prices may be increasing, not least of all because the prices of many bonds were depressed in the run-up to the Fed’s December meeting.

As some companies improve their profitability, and the market gets accustomed to the gradual pace of interest rate increases, so also should investors increase their wealth from investing in securities with good fundamentals.

The strategy for investors at this point, therefore, is to purchase some attractively priced bonds at prices which will allow them some good returns, and not wait until prices have escalated.

Prior to the Fed raise, the expectation was that bond prices would fall. However, it appeared that the market had already priced in the increase in the Fed rate and, based on data on Bloomberg just after the announcement of the rate rise, stock prices began to inch upward. Stocks initially rose 1.50 per cent on the news. However, on the following day, December 17, prices pegged back an equal 1.50 per cent as the reality of the price increase began to sink in. On December 18, stock prices were still declining, but did so at a slower pace.

The performance of most bonds was similar to that of stocks. Bloomberg data showed a mild increase in the prices of some bonds just after the Fed rate increase, with a retreat in the prices of these same bonds on the following day.

All of this is basically what has been expected in the market. It is also expected that this volatility will continue for some time; but, as we all know, volatility can present opportunities. Nevertheless, investors need to be vigilant and to carefully choose the investments they purchase during this period of volatility. Certainly, there will be good bonds that investors may wish to take advantage of while prices are low.

Financial bonds, generally, have been known to provide very good returns for investors, and are usually more reliable than many corporates in other sectors.

The next few months should be interesting for financial bonds as the banks may benefit from increased spreads on their loans and other assets.

How investors decide to proceed in the months ahead, however, will definitely involve a great measure of diligence and caution. Those who decide to take the plunge cannot be risk averse.

Pamela Lewis is vice-president, investments and client services at Sterling Asset Management Ltd. If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: info@sterlingasset.net.jm or visit our website at www.sterling.com.jm