How high will the German 10-year interest rate be in two years? - Natixis

The financial markets think that the German 10-year interest rate (the 10-year Bund, 0.45% at present) will be 0.90% in two years’ time, but Patrick Artus, Research Analyst at Natixis, suggests that Natixis thinks they will be much higher than that.

Key Quotes

“We think that it will actually be much higher, given:

• The increase in US interest rates and their transmission to the euro zone;
• The gradual exit from quantitative easing in the euro zone;
• The increase in inflation due to the rise in oil prices.”

“We began with a German 10-year interest rate of 0.4% in May 2017. To this we have added:

- 55 basis points due to the transmission of the rise in US long-term interest rates over the next two years; - 25 basis points due to the exit from quantitative easing in the euro zone; - 60 basis points due to the rise in oil prices and in expected inflation.”

“The result is an interest rate on 10-year Bunds of 1.8% in two years.”