Macroeconomics
the Fear and hope are the background for two of the world’s most important interest now each goes his way, believes the chief economist.
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the Difference between two of the world’s most important interest rates have increased to historically high levels the past few weeks.
Yields on u.s. statslån has risen steeply, while the yields on German statslån has gone the opposite way.
Monday was a difference of nok 2.14 percentage points on interest rates on statslån with ten year terms to maturity of the two nations.
– the Difference between the united STATES and Europe has just exploded in the past and gone to levels we haven’t seen in years and a day, ” says chief economist Bjørn-Roger Wilhelmsen in makrohedgefondet Nordkinn.
Fear and hope
There are more than 27 years since the last time this renteforskjellen was greater. We must all the way back to the time before the reunification between West – and East-Germany in 1989 to find the last time the difference was greater.
Wilhelmsen believes there mainly are two reasons why government bond yields in the two central nations on each side of the Atlantic has gone each his way the last few weeks:
- Signals of increased spending on infrastructure and tax cuts after Trump’s election victory has led to hopes of increased growth and higher inflation in the united STATES. In Europe, there is as yet no prospect of an equally strong development, and thus differentiated government bond yields layer.
- the Referendum in Italy on Sunday 4. December has raised fears of political chaos in the country. This has led to increased demand for German government debt and pushed yields down.
the Difference in renteutviklingen comes perhaps most clearly to call in loans with shorter maturities. In these loans are caught to the expectations of the very shortest interest rates, which the central banks control, better up than in loans with longer maturities.
the Difference in renteutviklingen come, nevertheless, also evident in loans with longer maturities. But the German tiårsrenter is still clearly higher than they were earlier in the year. This has to do with the fact that the long-term interest rates to a greater extent captures changes in long term expectations for inflation and economic activity. The development this fall indicates that growth – and inflation expectations have risen also in Europe in the course of the autumn, but also more moderate than in the united STATES.
the Interest rate on a statslån reflects the return investors get for lending money to a nation in a given period of time. The ongoing renteutviklingen comes first and foremost up in the secondary market, where shares in the statslån are traded among investors.
If the demand for statslån falls, the price will fall. This leads to the fact that the implicit return on the loan until maturity, i.e. the interest rate, increases. The opposite way will the interest rate fall if the price increases.
the Demand is affected by a variety of conditions, including the short interest rates are determined by central banks, the nation’s various companies ‘ growth prospects, inflation expectations at and any risk related to the nation’s ability to service the debt.
Yields have traditionally been used as a reference for the determination of the interest rates on a variety of types of loans to businesses and individuals.
Interest rates on loans to large nations such as the USA and Germany are particularly central, since these countries are considered as safe tilbakebetalere and has a large lånevolum. Since there are a lot of trade in the loans and the risk of default is considered very low, they can be used as a reference for a practically risk-free interest rate.
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Wilhelmsen believes the increase in markedsrentene this fall can be divided into four phases:
1. interest rates in the largest and most important of the mature economies of the world began to be ticking up even before the u.s. presidential election on the basis of the fact that several indicators showed better outlook for the global economy forward.
2. Donald Trump’s victory in the us presidential election earlier in november led to a sharp rise in u.s. interest rates, but also in Europe and Japan followed interest rates with upwards.
3. After a sudden increase also in Japanese yields, the japanese central bank two weeks ago action behind his promise to not let the interest on the statslån with a ten-year term rise to above zero per cent. Thus stopped the rise in japanese interest rates. Statements from The european central bank ECB made investors more confident that the central bank also in the future will lead an expansive monetary policy and continue to buy government bonds on a large scale in the market. This has stopped the increase in German interest rates.
4. the Fear of political chaos after the Italian referendum in the last few days meant that German interest rates have fallen further, especially for loans with shorter maturities.
Might be upset
Analysts Jussi Hiljanen and Lina Fransson, SEB also points out that the market is now pricing in less risk of weaker economic development and expectations of higher inflation going forward in loans with longer maturities.
– We expect that this process will continue in the coming months, write the analysts Hiljanen and Fransson in an update from SEB on Tuesday.
Also, the SEB-analysts draws up Sunday’s referendum in Italy as an element of uncertainty.
– There is a risk for lower interest rates after the Italian referendum 4. December. Any decline in interest rates should be seen as an opportunity to position themselves for higher interest rates, writes SEB-analysts.
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