We have been experiencing economic growth and expansion for years. Such movements have to be financed. Due to the extremely low interest rates, many companies have expanded their financing volume and are working with a high proportion of borrowed capital. Governments also took advantage of this extreme phase to finance their budgets. A debt burden has built up that has been and will be enormously increased even further by the pandemic.
Should we worry that rising interest rates could lead to a collapse of the system?
We cannot rule anything out, which is why diversification of asset classes and investments remains very important. In the US in particular, 10-year interest rates have risen quite sharply. From just above 0%, we are now facing a strong resistance area at 1.4%. If this resistance doesn’t hold, it could quickly head towards 2%. Based on the overall situation, this seems rather unlikely. This is supported by the technical analysis as well.
We do not expect any significant increases in short-term interest rates. This would be too dangerous for the system and would put the states in an almost unsolvable situation, especially in the current situation, where an enormous amount of money is needed to get the economy through the pandemic. We are convinced that short term interest rates will remain very low for a very long time. This supports the continued growth of the economies and leaves us asset managers with the challenging task of generating returns without disproportionately increasing risk.
The dynamics in the commodity markets give us confidence for a further positive development of the economies. This is greatly supported by the incredible momentum in Asia, especially in China.
If the resistance in the 1-year U.S. interest rates holds, it would be a positive signal not only for the financial markets, but also for silver and gold.