Now there is cheering.

After years of negative interest rates, bond yields are finally positive again - as we have been used to for decades.

For federal bonds there is almost one percent a year for ten years, for American government bonds even three percent.

Even the chronically hesitant European Central Bank (ECB) is hinting at the first rate hike in more than a decade.

It could go up by 0.25 percentage points as early as July, with further steps to follow this year.

And when that happens, the end of the negative interest rates for checking accounts that annoy all bank customers will also come to an end.

Dyrk Scherff

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

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Most banks charge a 0.5 percent fee on deposits and then call this a custody fee.

Instead of getting interest on their money, customers have to pay, and positive interest has become negative.

A few days ago, ING announced that it would increase the allowance to EUR 500,000 and thus effectively abolish negative interest rates.

A few small Volksbanks and savings banks are following the same path, including Skatbank, which was the first bank to introduce negative interest rates in 2014.

Other banks, such as Deutsche Bank, want to abolish the custody fee once the ECB has raised interest rates.

The world of savers seems to be getting nicer again, especially since more interest can soon be expected on fixed-term and overnight deposits.

But the prospects are clouded.

Because interest rates are rising because inflation is rising sharply.

And rising prices not only make filling up and shopping in the supermarket more expensive.

They also devalue the money invested.

The result: The saver has nothing from the now higher interest rates, they are eaten up by inflation.

And not just the interest.

The capital saved also loses value.

This drama can be seen in the so-called real interest rate.

He subtracts inflation from the nominal interest rate that every investor receives from their bank advisor for a fixed-term deposit or a bond.

The result: a continued negative real interest rate, despite the general jubilation about an interest rate turnaround.

Worse still, real interest rates have never been as negative as they are now.

That's not surprising, after all, the inflation rate, at more than seven percent, is the highest it has been in decades.

And if a government bond yields a nominal one percent return, after seven percent inflation, the real interest rate is minus six percent.

If you take the average of all bonds, the real interest rate is even more negative because they have lower interest rates.

So there is no sign of the much-discussed turnaround in real interest rates.

Real interest rates were last positive in 2016, apart from a brief outlier in the summer of 2020.

Until the euro crisis in 2011 and 2012, they were the norm, at least if you use the bond interest rate for the calculation and not the call money accounts and savings accounts that hardly bear any interest.

But since then, inflation has always been higher than the interest earned.

A few years ago even the nominal yields on Bunds went negative.

That only changed a few months ago.

Investors could now say: let the past rest, things went badly, now better times are coming.

After all, what is decisive for a bond purchase today is what the inflation expectations are for the future.

But here, too, disillusionment quickly sets in.

"Real interest rates will remain negative for many years to come," says Jörg Krämer, chief economist at Commerzbank.

Sobering conclusion

This also coincides with the expectations of the financial market for the coming years.

They show up, for example, in inflation-linked bond prices and in stock market trades that trade inflation expectations.

This results in an annual real yield of minus 4.4 percent when buying a federal bond with a two-year term, minus 2.5 percent with a five-year term and minus 1.7 percent with a ten-year term.

Inflation rates are assumed to decrease slightly.

The market expects an average of 4.45 percent for the next two years.

However, the yields on Bunds with a two-year term are currently just above zero, i.e. significantly below.

Financial professionals expect that the ECB will only raise the key interest rate to just under 1.5 percent within the next two years and will thus remain below the inflation rate.

But how realistic are these market expectations?

Is there any hope that the market will be wrong and yields will be higher and thus real interest rates will turn positive?

"The yields on federal bonds could rise by more than two percent in the next few years, but inflation is also likely to be higher than expected," says chief economist Jörg Krämer.

On the one hand, this is due to the fact that high inflation helps the states to reduce the sharply increased mountain of debt through higher tax revenues.

It is in their interest not to curb inflation too much.

The hesitant ECB is already an indication of this.

On the other hand, inflation is increasing due to less globalization, deliberately rising energy prices for climate protection and rising wages due to the shortage of workers.

The somewhat sobering conclusion remains: the recent rise in interest rates has made the world of investors a bit more normal again, and there is interest on savings again.

But inflation takes the fun out of it.

It will not be possible to earn money with bonds, call money and time deposit accounts for many years to come.

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