This has not happened since 2018: the interest rate on French 10-year government bonds, which is a benchmark, crossed the 1% mark on Thursday, March 24. At around 1:15 p.m., it stood at 0.976% after reaching 1.003% a few minutes earlier. In recent years, it has exceeded this threshold, at closing, only twice, in February 2018.
However, the movement is not limited to France but to the whole world: the US 10-year loan rate reached its highest level since May 2019 at 2.368% and that of the German Bund at 0.525%, the highest since the end of the year. of 2018.
Spectacular growth in the space of a month
In one month, the rise is dazzling: the French rate had fallen to 0.40% in early March, at the start of Russia’s invasion of Ukraine, which had caused an avalanche of investors into bonds, assets considered lower risk. In the debt market, interest rates move in the opposite direction to bond prices.
But market trends for several months quickly caught on and interest rates soared again, returning to 0.8% in mid-March, as before the Russian offensive.
Yohan Salleron, share manager of Mandarine Gestion, points out “a normalization of the interest rate market” whose “were artificially low” under the effect of the extremely accommodative policies of the central bank. Between mid-2019 and April 2021, the French interest rate was even mostly negative.
However, the fact that this normalization is done “in conditions of fears about the sustainability of growth” East « abnormal », according to the analyst from Mandarine Management, who points out that the rise in rates is late compared to the peak of growth, which has already passed.
A rise in a context of more restrictive monetary policies
Since Monday, rates have resumed their rise against a backdrop of US Federal Reserve Chairman Jerome Powell’s determination to rapidly raise key rates to counter inflation, which is at an all-time high. in 40 years in the United States.
“There is a lot of fuel in the engine of inflation, we must regain control of the rise in prices even if it means having a recessive impact”continues Yohan Salleron.
Several central banks announced last week to raise their rates. With the war in Ukraine driving up prices and aggravating inflation, they are faced with a dilemma: choose between maintaining ultra-accommodative monetary policies, at the risk of inflation settling in for a long time, or raising rates, which weighs on the borrowing capacity and lending by individuals and businesses alike and, ultimately, in growth and employment.
Raising key rates actually pushes commercial banks to offer higher interest rates for loans granted to their clients, for the purchase of a house, a car or even a television, for example. Therefore, this should slow down consumption, to ease the pressure on prices. Especially since the supply problems should not be solved soon. At the risk, however, of weighing on economic growth.
The European Central Bank (ECB) said on Thursday March 24 that it could raise interest rates this year, even if its guidelines leave it a lot of leeway on the timing of such a move, said Frank Elderson, a member of the ECB’s Administrative Council. The institution announced that there would only be one rate hike ” some time ” after the end of the bond purchases, scheduled for the third quarter, which, according to Frank Elderson, could imply a lag of several months between the two measures.
For its part, the US Central Bank bet, already last week, on a cautious rise of a quarter of a percentage point, now placing its rates in a range of 0.25% to 0.50%, after having maintained for two years between 0% and 0.25%. A consensus also appears to be emerging among various leaders of the monetary institution for one or more sharp increases in key rates in 2022.
As for the Bank of England, it also raised its interest rate last week by 0.25 percentage points to 0.75% (its pre-pandemic level). Ditto Another example: the Bank of Canada raised its benchmark rate in early March from 0.25% to 0.50%, for the first time since October 2018.