The transatlantic interest rate differential is widening: the bond market yields in America and Europe are moving further apart.
Since the beginning of November, the yield on the trend-setting German government bond with a ten-year term has recently fallen to minus 0.24 percent.
In contrast, the yield on the corresponding US government bond has risen again, most recently to 1.63 percent.
Christian Siedenbiedel
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“On both sides of the Atlantic, the yields are lower than the outlook for growth and inflation suggests,” says Holger Schmieding, chief economist at the Hamburg bank Berenberg: “On both sides of the Atlantic, the central banks will support the bond markets far less in the coming year as before."
Overall, yields are likely to rise somewhat
The US Federal Reserve (Fed) wants to gradually end its net bond purchases by the middle of the year.
The timetable of the European Central Bank (ECB) provides for the large PEPP crisis program to expire at the end of March, even if the longer-term purchase program APP could be increased somewhat.
"All in all, that speaks for somewhat higher yields in the United States and the euro zone, although the increase is likely to be more pronounced in the United States," says Schmieding. In America, given the more pronounced dangers of inflation, the interest rate turnaround is already underway: the Fed is likely to be in place by mid-2022 at the latest increase their key interest rates for the first time, while the ECB will probably wait until autumn 2023 to do so.
"As for the ECB, President Christine Lagarde recently stated that the conditions for rate hikes will most likely not be met in 2022, but she did not want to make a binding statement on 2023," said Andreas Billmeier, economist at Western Asset, a boutique of the Franklin Templeton fund company.
"Monetary policy uncertainty has caused interest rates to fluctuate much more than usual despite the continued bond purchases."