Rising yields for federal bonds: significance for investors and the state

Investors now receive returns of more than 3.5 percent per year from the German state if they give up their money for ten years. Hardly any investor will be willing to lend their money for less than that over such a period of time.

On the one hand, the rise in yields on government bonds means that investors can once again realize greater returns with debt instruments. For the state and all other borrowers, it not only makes debt servicing more expensive over time. Since federal bonds serve as a price anchor for the entire bond market, their yields generally also increase the financing costs of all other borrowers.

This can even be relevant for the central banks’ monetary authorities. In and of themselves, rising yields tighten financing conditions, which can slow down economic activity.

It is pleasing to note that the rise in yields has so far been surprisingly quiet. If one interest rate regime replaces another, this can lead to disruptions, both large and small. What is not yet can still become. But so far the warnings have been more dramatic than the market movements.

It's still more than a month away from the ECB's next interest rate decision. Most recently, the market was expecting another interest rate hike for the current year, towards the end of the year. If yields continue to rise by then, their influence on the financing conditions should not be ignored when making the decision.