For the first time since May 2019, the ten-year German government bond has broken through the symbolically important zero value.
The fact that the interest rate turnaround in the USA is being heralded is having a surprisingly quick impact on the European market and especially on the German market. For the first time in three years, the yield on German government bonds has risen above zero. This means that for the first time in a long time, investors are receiving money for the loans granted to the state.
“The market has thus broken a symbolically particularly important mark. Finally, the investor does not have to pay extra when buying ten-year government bonds. But these bonds are by no means an attractive investment that promises a return in addition to the security of the later repayment,” recapitulates Holger Schmieding, chief economist at Berenberg Bank, to Reuters.
Triple A for Germany
The state of Germany is generally very popular with investors because its credit rating is rated AAA by all major rating agencies, which is the most stable credit rating. This year, the federal government wants to borrow around 403 billion euros from investors, of which around 56 billion should consist of conventional bonds with a ten-year term.
Respect for interest rate announcement
Investors have respect for the US Federal Reserve’s decision, which has already announced that it will raise interest rates. With the next three rate hikes, they want to counteract inflation, which is now seven percent and thus the highest since 1982. For fear of a rapid succession of further interest rate hikes, many investors are throwing government bonds out of their portfolios. This drove the yield on the ten-year German government bond back into positive territory on Wednesday for the first time since the beginning of May 2019, yielding 0.017 percent.
In the US, on the other hand, the yield on comparable Treasuries rose to 1.884 percent on the prospect of interest rate hikes by the central bank in the near future. On the markets, these securities are seen as pointing the way. The European Central Bank, on the other hand, remains calm and has still not scheduled any rate hikes.
The current inflation figures give cause for concern: in Germany, consumer prices rose by 5.3 percent in December 2021 compared to the same month last year. The last time inflation was higher was almost 30 years ago, when prices rose 5.8 percent in June 1992.
For the time being, the all-clear has been given for the financial budget of the new German finance minister, Christian Lindner. ING chief economist Carsten Brzeski explains: “We don’t need to worry about Christian Lindner’s finances, even with these returns. Loans are slowly becoming a little more expensive or – better said – a little less cheap.”
In contrast to the finance minister, the increase in yields could represent a greater burden for builders. In the meantime, many real estate loans are likely to be outstanding that only work if interest rates are very low, said IfW expert Boysen-Hogrefe to Reuters. “Even an absolutely small increase in interest rates can mean significant stress when it comes to follow-up financing.”
If a loan agreement pays off at one percent, an increase in interest rates to two percent would double the interest burden. Real estate prices could then fall again, which have been fueled by low interest rates in recent years.
In this country, the prices of Austrian government bonds were mostly weaker in early trading on Wednesday, with yields increasing for the most part.
That of the trend-setting ten-year Austrian benchmark bond rose by two basis points to 0.23 percent. The yield spread to a comparable German bond was 22 basis points.
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