Welcome to the new world of interest rates

Welcome to the new world of interest rates! A financial system with returns beyond five percent marks the definitive end of the era of cheap money, and this paradigm shift will fundamentally alter conditions in global markets. Solid growth rates and robust corporate profits, especially in the USA, are still cushioning the rapid rise in yields of the past few weeks. But that can change quickly.

The epicenter of the quake is in the USA. The bond markets there have had their worst quarter in 30 years. The yield on ten-year government bonds climbed to up to 5.3 percent, the highest level since 2002. For comparison: at the beginning of the year, US yields were still at a significantly low 3.96 percent.

The rapid increase in yields means that all other asset classes must deliver significantly higher returns in order to compete for investors' capital. This calls into question the valuation of stock portfolios, tightens the conditions for borrowers of all stripes, from governments to companies to consumers, and at the same time offers significantly better conditions for traditional savers.