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US interest rates feel the force of the US stimulus package

The markets in the US have reacted strongly upon the earlier announcement and subsequent Senate approval of the USD 1,900b stimulus package. The yield on the US 10-year Treasuries rose to just over 1.50%, an increase of more than 0.40% compared to last month. Compared to the start of the year, 10 year rates are even up by 0.60%.

In summary, the cost of borrowing in the US has risen by more than half a percent since the beginning of the year as demonstrated by the spike in the figure below. We also notice that the curve has steepened, the increase in longer term rates is much stronger than at the short end. Normally a phenomenon typical for the early stages of an economic growth cycle reflecting anticipated inflation and further rate increases.

The positive market sentiment has not only led to an increase in yields but also to big shifts within the stock markets. Tech stocks (seen as Corona-proof) have sold off whereas value and financial stocks have risen. The largest bank in the world by market capitalisation (JPMorgan) is for example trading at an all-time high.

This leads us to the big question on everyone’s mind, what will happen to rates in the Eurozone? Rates are definitely up in the last weeks and the euro curve is also steepening. We also see some more activity in hedging interest rate exposures. However, the question of whether this is a temporary uptick - like the one we saw late 2019 - or a more permanent situation remains to be answered. We will definitely be watching market developments closely.

As independent advisors, we are always happy to assist you with questions about your interest rate exposure and/or other financing related questions to your business.

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