Interest US by magic 3% limit

amsterdam - After a few days of flirting with the magic limit of 3%, the important American ten-year rate on Tuesday rounded this cape for the first time in four years. 'Such a round number is very important psychologically.'

The US yield on 10-year government bonds is an important indicator. Not only for bond investors, but also as a building block for other financial products such as mortgages.

'3% is primarily a psychological barrier,' says Carl Tannenbaum, Chief Economist at Northern Trust. 'If interest rates go round with a round number, investors will again evaluate what they want to do with their investment. '

But according to head of government bonds Raymond Verstraelen of Achmea Investment Management, the rise in interest rates is also historically an important moment. 'For example, we have not seen such a high five-year rate for ten years. '

On Monday, the ten-year rate rose to 2.98%, at the start of April it was 2.76%, a difference of 22 basis points. On Tuesday around four o'clock the treasury finally went through it.

According to Tannenbaum, the interest is due to the tax cuts of President Trump. 'Calculations show that the budget deficit will start to run. That means the American government has to borrow more, so investors want a higher interest rate. '

What is even harder than the US ten-year rate is the interest on US government bonds with a term of two years. This makes the yield curve flatter, the difference between the interest rates on short-term and long-term bonds is getting closer and closer together.

Now that the difference between long and short interest rates has crept to the lowest point in ten years, investors are cautious. They fear that the short-term interest rate may even be higher than the long-term interest rate. In the past, such a 'reversed curve' was an important harbinger for a recession.

The long-term interest rate is partly a reflection of how much confidence investors have in the American economy. The more growth and inflation they expect, the higher the interest rate.

Verstraelen has also become more cautious about the growth prospects. 'The US is now in the second longest growth phase since the Second World War. The risk of the economic image going to tilt is therefore increasing. '

Tannenbaum thinks that it will not run at such a speed. 'A reverse curve meant in the past that a recession was coming. Even though it can take another year and a half. So in the short term, I see no cause for great concern. '

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