Paris (awp / afp) – The return to positive territory on Monday for the second time in two weeks of the German benchmark bond, at 10 years, symbolizes the end of an ideal parenthesis to manage the crisis. Companies and States will now have to be wary of the cost of their debt.
The total stock of negative debt, which was above $18 trillion at the end of 2020, has halved, according to an index from the financial news agency Bloomberg.
Why are rates going up?
To support the States, which had to spend massively in order to allow the economy to withstand the shock from the start of the Covid-19 crisis, the central banks used all the means at their disposal, in particular that of the repurchase of quantity market debt. This strong additional demand has led to a drop in bond prices, which mechanically pushes up their rates.
For the European Central Bank (ECB), this action has combined with others, such as a negative deposit rate (-0.50%), which means that commercial banks that keep their money have to pay a penalty and that lending to States, even at a negative rate, appears to be safer.
With the economy recovering and inflation returning, central banks are gradually ending their asset purchases. The US Federal Reserve (Fed) announced a first hike in its key rate in March. More cautious, the ECB still ensures that it does not consider this in 2022.
The prospect of this turning point has already pushed up rates for States: from 1.42% to 1.81% for the American 10-year, from -0.01% to 0.44% for the French and from -0, 37% to 0.03% for the German since the end of December.
Is it dangerous for States?
With a debt of 115% of GDP for the French State, the interest to be paid is closely monitored.
“We are starting from a very favorable situation”, nuances Eric Dor, director of economic studies at the IESEG School of Management.
Unlike individuals who take out a loan, States pay the amount borrowed only on its due date, most often by taking out a new loan for an equivalent amount.
Each year before maturity, they only pay interest. The average interest rate for all debt incurred, the most watched “implied rate”, was 1.3% in the third quarter of 2021, an all-time low due to “years of long rate compression”. , explains Mr. Dor.
In addition, as long as the interest rate “remains below nominal growth, the debt is on a sustainable trajectory”, because the gross domestic product increases further, notes Franck Dixmier, head of rate management at AllianzGI.
Finally, the acceleration of inflation, which mechanically reduces the debt, makes it possible to reduce the pressure on the States.
Is this a boon for banks?
Banks, particularly European banks, have suffered from the low interest rate environment, which is compressing their margins and resulting in a drop in their stock market valuation. But the effects of the rise in rates will not yet be spectacular.
For the German loan, a rate of 0.01% means obtaining 10 euros per year for an investment of 100,000 euros.
Barely enough to buy “candy”, ironically in a note Frédéric Rollin, investment strategy advisor at Pictet AM. “Bond investors, who have suffered substantial capital losses, may prefer headache tablets for this price.”
What are the consequences for businesses and individuals?
The interest rates of corporate bonds on the markets are also affected by this movement. The most indebted companies and in difficulty with the crisis are the most in danger but, “for the moment, the rates for companies vary in the same way as those of the States, a sign that investors remain serene in their ability to repay their debts,” said William De Vijlder, director of economic research at BNP Paribas.
Individuals can also feel the effects. “Interest rate movements are global, so this can lead, for example, to the increase in the cost of real estate loans,” explains Mr. Dor.
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