This chart has not been this high since before the financial crisis

In recent days, the interest rate on ten-year US government bonds, often referred to as “ten-years,” has risen to the highest level since 2007 – before the financial crisis swept the world. And he didn’t just rise high. It also rose very quickly. Very quickly, investment manager Pall Ringholm had to turn to the history books.

– He says: We have to go back to the French Revolution to find a relative increase.

The long-time credit analyst, who now works as investment director at the Capital Region Health Institutions Pension Fund (PKH), sees two main risks as a result of a sharp increase in the world’s most important interest rate.

It has never happened in the history of the United States

But first there will be another history lesson.

US market interest rates above five percent are nothing new. In the early 1980s, the interest rate was 15 percent when then-central bank governor Paul Volcker successfully eliminated inflation during two recessions. After that, the ten years fell continuously for 40 years until it collapsed after the epidemic. According to Ringholm, something similar had happened only once before.

– It has happened before that the decline in interest rates was long and large. After the collapse of the Eastern Roman Empire in the fifteenth century. He says it’s very good to realize that this isn’t every day.

The low level of interest rates has greatly upset the capital market. For the third year in a row, there is a negative yield on bonds, according to Ringholm, who says this has never happened before in the more than 200-year history of the United States. Now interest rates have risen rapidly and capital markets are in turmoil again. Many of them pointed out that the stock market now hardly gives an expected return above interest.

– Ringholm says: – The world can no longer work without benefit.

The 10-year US government bond interest rate is often called the most important interest rate in the world.

– It is the axis itself. It is the price of capital. So, there is every reason to look at what is happening to the ten-year-old American child with awe, says the investment manager.

State on N

The only danger Ringholm sees is what he himself refers to as the SCANN countries: Sweden, Canada, Australia, Norway and New Zealand.

Countries reduced interest rates after the subprime crisis and resorted to negative real interest rates, zero interest rates, and negative interest rates even though they did not need to. It is a country starting with the letter N that has the most indebted people in the world and where most people enjoy variable interest rates. He says that countries you can imagine are more vulnerable in the housing market than other countries, and he does not hide the fact that we are talking about Norway, not New Zealand.

Ringholm believes that a correction in the Norwegian housing market is more likely. Then prices will usually fall by 10-20 percent.

– It wouldn’t be surprising, but it shouldn’t happen, he says.

Another risk he highlights is commercial real estate. The sector has been affected by the sharp rise in interest rates, and many have warned about this. One of the most talked-about players is crisis-hit Swedish real estate company SBB. The stock price collapsed from above and the company sold its holdings to boost liquidity.

Ringholm believes the United States will see many banking losses in this sector in the coming years due to the combination of home offices and market interest rates.

Despite the sharp rise in interest rates, which makes the present value of companies’ future cash flows lower, the stock market has performed well. The Standard & Poor’s 500 index is up about 12 percent this year.

Ringholm believes the economy has been so strong that stock markets have been able to ignore rising interest rates.

-But if the real interest rate is 2% and inflation stops at 3% with an additional risk premium on top of that, a 10-year-old could get 5% and even 6%. He says it will be difficult to ignore that.

-Then the stock market will fall?

– Yes.

Today, the ten-year interest rate in the United States is about 4.55 percent. The fact that interest rates are rising again is ultimately good news, the investment manager says.

– It’s normalization. What we’ve been through can’t go on any longer.

– Simply more expensive

DNB Markets Chief Economist Kjersti Haugland follows the Norwegian economy closely. She explains that Norway’s 10-year swap rates closely track US 10-year interest rates.

For long-term interest rates in Norway, what happens in the US is much more important than what Norges Bank does, she says.

Everything from small to large and mega-sized companies may need to lock in their interest expenses, which is done through so-called interest rate swaps, i.e. entering into fixed interest rate agreements so that they have a more predictable cost picture in the future. Hoagland highlights commercial real estate as a typical example.

– She says that they buy buildings for large sums, often need loan financing, and have long sources of income.