Europe: rise in interest rates arouses concern

For the first time since May 2019, the return of the German obligations at ten years approaches zero. This increase picks up a risk on the scholarship and the debts of the States.

by

The space of a few minutes, Tuesday, January 11, the German bond rate at ten years (- 0.02%) failed to become positive again. The symbolic bar of zero has not been crossed, but it is probably a question of days. When it happens, it will be the end of a two and a half years of negative rate, started in May 2019. Since early December 2021, the German rate has increased by nearly 0.4%. The trend is the same everywhere in Europe. In France, ten-year bonds are now 0.3%, at the highest since May 2019, while they have been 1.2% in Italy, a record since May 2020. Gradually, the parenthesis of negative rates closes .

With 5% inflation in the euro zone and 7% in the United States, markets anticipate interest rates increases. In the United States, the Federal Reserve (Fed) could increase its key rate in the coming months, and analysts rely on at least three increases in 2022. The European Central Bank (ECB) is not at the same point: A rise this year is “very unlikely”, has warned Christine Lagarde, his chair. But the institution of Frankfurt started a gradual withdrawal of its market response program: 70 billion euros injected per month currently, it must in principle increase to 20 billion a month from October.

The trend is massive: interest rates will go up. This puts two main problems: a potentially close risk of a violent stock market fall; Another, relatively content, on the sustainability of public debt. The Banque de France shot the signal from alarm, Monday, January 10: “Some market valuation indicators point a persistent level of exuberance, which makes the risky asset markets vulnerable to a brutal correction.” The institution emphasizes the strangeness of the stock market situation. Even though European economies have not yet returned to their level before the Pandemic of Covid-19, stock markets. CAC 40 earned 29% in 2021.

Fragility of speculative funds

Scholarship valuations (the stock price ratio of the profits, corrected in the economic cycle) now reaches known levels only before the major crises: they “have exceeded [those of] 2008, both in France and In the United States, and approaching the Atlantic peaks affected before the bursting of the Internet Bubble [2001], notes the Banque de France. However, these valuations come directly from low interest rates, which grow investors to seek higher returns to risky products, including actions. If they increase, valuations are called to fall.

You have 36.68% of this article to read. The rest is reserved for subscribers.

/Media reports.