There is something crooked in the trend of interest rates. In Europe, but also in the rest of the world: long -term rates are high and continue to rise. This concerns the yields of fixed income bonds, starting naturally from government bonds. And therefore it affects investors.
We must start from the context generated by the monetary policy which, for all last year, has been marked by the drop in interest rates. The ECB, in 12 months, cut the official rate on deposits of 150 points: from 3.5 to 2%. The Fed much less, however, also cut the US central bank: from 4.75% to 4.25%, only 50 points. Well, this trend, justified by the return of inflation to the ranks of 2%, was reflected only on a piece of the yield curve: the short type ones have fallen, and the deadlines within 10 years, type BTP. For the rest, the rates remained high. And they continue to grow, see the British or French bonds. The Bloomberg index of global sovereign bonds indicates that long -term titles are at the highest returns of the last 15 years. But for everyone, beyond the individual rating and indices, this example is worth: on the market there is a so -called “mattusalem” title of state, very indicative. It is emitted by Austria, which presents an AA+ rating (Standard & Poor’s) according to the triple AAA, whose deadline is scheduled in September 2117, in 92 years (Austria -20ST17 – 2.1). This is the reason for the “Matusalemme” category. Well, Austria 20st17 from the beginning of the year has gone from a price of 82 euros up to the current 59: it has lost 28% which, for a bond with AA+rating, is a hugeness. But this tells us precisely: that on long deadlines the interest rates required by the market are increasingly high (and consequently, since the coupon is always paid the same, the prices drop). Why?
The reasons are so many that they make this trend, at least at the moment, very solid. On the one hand there is the renewed alarm on sovereign debt. It applies to Europe for the aforementioned cases of France and England, where political instability makes public accounts more worrying than those who are even more indebted, such as Italy. But it also applies to Germany, where interest expenditure is taking off (+116% from 2020, double Italy) and the debt begins to grow. But mainly applies to the US, where the size of the indebtedness add up to the perplexity on the Trump treatment, which could lead to a pandemonium if the Supreme Court declared the duties imposed by the White House illegitimate: in the US public accounts a new voral potential would open. On the other hand, there is then the Fed case, in which the same president Trump, threatening the independence of the central bank, undermines its credibility and paying the cost are always the most distant scenarios, for which uncertainty increases.
On markets, as always, nothing is as it appears.
And when things happen it is already too late to translate them into investment behavior. So if it is true that the tendency of interest rates remains oriented downwards, and soon a cut of the Fed could arrive, as regards the distant deadlines, the story is all different.