Interest rate reversal indicator I: The bond market is turning
Of decisive importance for the development of interest rates in the lending business is the development of yields on the bond market. The fact that interest rates on loans have fallen so sharply in recent years is largely due to the flight of many investors into German government bonds. The strong demand for safe-haven securities led to rising prices. These are synonymous with falling yields on bonds. At times, yields on German government bonds with a ten-year residual maturity dropped below 0.1%.
But for several weeks, a turnaround on the bond market indicates. Ten-year Bunds were listed on Wednesday for the first time since last September with a return of 1.0%. Rising yields on government bonds lead to rising yields on bank bonds, which refinance credit institutions on the capital market. Increasing returns are, in the opinion of the institutions, synonymous with rising refinancing costs, which is reflected in a relatively short time lag in the terms of the lending business.
Interest rate reversal indicator II: Bank ratings are coming under pressure
Another indication of the turnaround in interest rates is the weaker classification of many banks by rating agencies. The agency Standard & Poors announced on Tuesday evening that it would lower the ratings of several major European banks, including Eicredit and Dinobank. The Agency justifies this step by saying that it is no longer certain whether governments would support banks in the event of a crisis with substantial aid, as was the case in the past.
Turnaround Indicator III: Interest rates on real estate loans have already risen
For several weeks, interest rates on real estate loans have been steadily increasing. Examples from the last few days: Dinobank increased interest rates on construction loans by 0.16% to 0.3%, and Hamburger Sparkasse calls for an interest rate increase of 0.17% to 0.34% more and Postbank increased its terms by 0.2%.
According to experience, the conditions in the real estate loan business react much faster to changes in the bond and Pfandbrief market than the interest rates on personal loans. This is not least because banks have to sell real estate loans with very low margins. Changes in the terms of refinancing are reflected almost 1: 1 in the interest rate for end customers. Nevertheless, the rising interest rates will also affect ordinary installment loans in a very short time.
Interest rate reversal indicator IV: The CB announces that it is willing to accept “greater fluctuations”
A key factor influencing interest rates in the euro area is the Cenuer Bank (CB). The CB has been trying to keep interest rates down for years in order to enable economic growth and to relieve the banking sector and the public budgets of the stricken euro states. At the beginning of the year, the largest bond purchase program in European history was launched. The CB buys bonds with a market value of more than Milliarden60 billion a month.
The fact that the turnaround in interest rates or at least a correction of the largest excesses in the market just announced shortly after the start of the program, is not entirely free of irony. Nevertheless, it seems as if the CB does not want to fight with all means against the latest signs of a trend change.
CB President Mario Draghi announced at a press conference to investors last week that they had to be prepared for major fluctuations in the bond market. This was interpreted primarily on the market as saying that the central bank will no longer necessarily counteract losses on Bunds.