The decline in long-term interest rates in strong euro countries such as Germany continued last month. The 10-year interest rate went from 0,6% in October to 0,20% in February. In March, the interest rate then really went down, because it first fell to 0% and then even went below that.
The movement of recent months can be easily explained, because these long-term interest rates respond to changes and prospects in inflation and, on the other hand, to changes in economic growth. Expectations about monetary policy also play a role.
Effect on long-term interest rates
If investors estimate inflation to be lower, this will push down long-term interest rates. The same applies to expectations about future economic growth. Finally, if monetary policy remains loose(er), long-term interest rates will also initially fall. This certainly applies if a looser monetary policy (as it does today) means buying government bonds again.
In recent months, both growth and inflation expectations have been significantly revised downwards. Also gave the ECB clearly wants to make its policy broader. It is therefore not surprising that German long-term interest rates have fallen. It still looks likely that interest rates will rise in the medium term.
This article is part of the Arable Farming Pro Trend Report published this week, which also focuses on the onion market, the potato market and the manure market. Click here to read the Trend Report.