The trend of ever-lower interest rates has been going on for quite some time now. Still, this week bond markets set a couple of remarkable new records.
This week, interest rates on German 10-year bonds dropped below zero for the first time ever. Germany joins Japan and Switzerland on the list of countries with negative 10-year interest rates. In Japan, these hit -0.2%, in Switzerland -0.6%. Even more spectacular, in Switzerland even 30-year interest rates have now dropped below zero. Meanwhile, in Belgium interest rates are now negative up to a 7 year horizon.
Importantly, in light of the current economic climate and the stance of the central bankers in the main economic blocks, this situation isn’t about to change anytime soon. Both in the Eurozone and Japan, further monetary stimulus measures in coming months still look likely. Meanwhile, in the US the Fed is taking this ‘hiking cycle’ extremely slow.
Interest rates can move up somewhat in coming months as earlier increases in oil prices push up headline inflation after the summer. Still, a return to pre-crisis ‘normal’ levels of interest rates should not be expected in the next few years.