The interest is finally back

DBond markets are often overshadowed by stocks. But now they have become the center of attention in full force. Something incredible, long forgotten, is happening there. Yields are outpacing many years of negative interest rates at a breakneck pace. In 2014, they fell below zero for the first time. They remained below this threshold until the end of January and again in early March. And now, just a few months later, they are generating nearly one percent a year.

dyrk scherff

Editor of the “Value” section of the Sunday newspaper Frankfurter Allgemeine.

That’s not much, but bonds haven’t seen such rapid increases in interest rates for decades. What is happening is truly a violent setback. Because savers can afford bonds for the first time in a long time. There is interest in money again, a new situation that is actually historically the norm. That’s how we learned it in school.

The world of interest rates, from which they had withdrawn for years, is now opening up again for private savers. The professionals stood alone. Don’t expect four or five percent a year like it used to be. But two to three percent is possible with moderate risk, sometimes even a little more. And watchers at the banks expect interest rates to continue to rise around the world because inflation will remain high. “Inflation is here to stay,” says Commerzbank chief economist Jörg Krämer. Responsible for this are higher energy prices due to the Ukraine war and the recovery of the economy after the pandemic, but also controlled by climate policy. Unprecedented financial injections from the state and central banks are also among the causes, as is growing state protectionism. Core inflation will stabilize at a higher level of more than 2 percent in the euro area.

Rate hike no later than September

That will drive interest rates higher. Commerzbank expects a 1.1 percent yield on 10-year federal bonds by the end of 2022 and about 2 percent in 2024. Next year there could be a brief slowdown to 0.8 percent because the economy it will grow with less force. In the United States, government bonds with such maturities would return about 3.3 percent at the end of this year.

Central banks raise interest rates again after a long time. For savers, this means they can expect to soon be able to get a little more bang for their buck overnight, and the period of negative checking account interest will come to an end next year at the latest. The US Federal Reserve made the first move on interest rates in March, with several more to follow this year. Commerzbank expects the key interest rate to be 2.5 percent at the end of 2022 and 3.5 percent at the end of 2023. The ECB could start the first interest rate hike in July or, at the latest, in September. By the end of the first quarter of 2023, there could be three interest rate hikes of 0.25 percentage points each, assuming there is no energy crisis, such as a gas embargo.

What does that mean for savers who, after a long time, want to earn money again with interest products? First of all, it will not be able to compensate for high inflation, so in real terms it will continue to lose money. But you’ll see positive interest rates everywhere, and if you look hard enough, you’ll find investments that pay decent interest. But where?

Fixed-term deposits are attractive again

The obvious ones are daily and time deposits. Here interest is paid again, but the level is still low. For overnight money, whose terms are based on the key interest rate and can change daily (hence “overnight money”), there is currently up to 0.35 percent per year. Up to 1.10 percent is paid for 2-year fixed-term deposits, up to 1.30 percent for 5 years and up to 1.50 percent for ten years. After all, that’s more than can currently be earned on federal bonds.

However, federal bonds are also traditionally the bonds that generate the lowest yields in the euro zone, because Germany is considered the strongest state and its bonds are the standard for all of Europe and therefore are demanded accordingly. . That depresses come back. A look at the rest of the eurozone is more promising. In the South in particular, higher interest rates are tempting. Portugal and Spain pay almost two percent, Italy already 2.6 percent for ten years. For five years, Italy has offered 1.8 percent, Portugal and Spain 1.2 percent. Italy’s interest rate level is so high because fears of a government collapse and political instability are pushing down bond prices, pushing up yields. And because the country has such high debts.

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