Construction costs are currently skyrocketing

Contrary to the opinion of some professionals here, such as bank advisors from NRW or investment advisors, financing experts, etc., I had speculated here about further rising interest rates. But since I am just a small and insignificant layman, no one wanted to believe me.

Now, interest rates keep rising and anyone here who again talks about falling interest rates is ignoring the situation. A few weeks ago, I pointed out the connection between bond yields and interest rate developments.

The yields on bonds are rising significantly, whether US Treasuries or German 10-year government bonds. Since bond prices are falling accordingly and inflation remains constant, central banks are forced to raise interest rates. And we are far from the end of this. So don’t dream of falling interest rates. Take advantage of the currently still favorable and historically low interest rates.

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In the chart, we see a clear bond crash that requires further drastic interest rate hikes. This does not look quite so drastic for German government bonds yet, but we are also well on our way there.

The central banks’ overly long zero-interest phase is now coming back like a boomerang, twice and thrice over.

Directly connected with the yield of the ten-year German government bond are also the mortgage interest rates. Banks primarily refinance their construction financing through covered bonds. Their yields are oriented to the interest rates of ten-year German government bonds. For this reason, mortgage rates have also risen massively. For ten-year financing, they were recently at an average of 4.13 percent, according to data from the Frankfurt FMH Financial Advisory. By comparison: two years ago, they were still 0.75 percent.

Here, people wanted to tell me that bond prices have nothing, absolutely nothing to do with mortgage interest rates. What nonsense. I stick to my statement that we are heading at least into a corridor between 6 and 8 percent.

And anyone who internalizes the above chart will see that an explosion of interest rates is still to come. And it will be tremendous!

Here we are already at financing interest rates of around 6 percent for high-priced capital goods, around 5.5 percent for subsidized machinery, depending on repayment and term.

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In the chart, we see a clear bond crash, which makes further drastic interest rate hikes necessary. Although this does not yet look so drastic for German federal bonds, we are also on the best way there.

You are confusing something, but very badly.

The bond "crash" does not make further interest rate hikes necessary, the bond crash is relatively immediate the result of the interest rate hikes.
When the key interest rate rises, bond prices fall – because the paid coupon is comparatively less attractive – longer-term bonds react more strongly due to higher duration.
If you hold the bond until maturity, the price approaches 100 again the closer to maturity it gets – only if you have to sell now, you get less for it, because the bond is less attractive compared to newer ones with a higher coupon due to the lower paid coupon.

On the contrary, the sharply increased refinancing costs will lead to headaches for some nations next year – also in the USA!
Therefore, it is important to weigh inflation against debt servicing, and I would not want to be in the shoes of the central bankers...

By the way, your chart is nice to look at without labels, but unusable ;)

In the chart we see a clear bond crash

In the chart we see absolutely nothing. It doesn’t even have a label. I suspect you yourself don’t really understand what is shown there, or you are welcome to explain it to us...

I stick to my position, we are heading at least into a corridor between 6 and 8 percent.

Then maybe you should consider applying as an economist somewhere and shake up the industry. Because with this opinion – also with the wrong arguments, which I don’t understand either – you stand alone.

Apart from that, by the way, I am currently looking for the continually advancing interest rate rise (just 0.20% more and then staying at the new level is not a rise, but a sideways movement). Oh yes, the experts also point out the missing forecast for rising Treasuries and long-term interest rates (on the contrary: USA: forecast for 10Y Treasuries in 2024 at about 3.70% and easing of interest rate restraints by about 100bp / in Germany, by the way, the yield of 10Y federal bonds will be at about +/- 2.5%, or at most one key rate increase, and a first rate cut in H2 2024).

But well, that’s the job of economists after years of study and professional experience. Of course, they cannot compete with a box tree and its knowledge of the world economy. Or the box tree moth is giving the box tree a hard time ;-)

The chart shows the yields of 10-year US Treasurys over the last 100 years.

The mandate of central banks is clearly defined. Currency stability is the top priority.
Economy, government financing, or consumers come later. Because you often read here and elsewhere that central banks must lower interest rates, otherwise the economy will collapse.

Of course, one has to decide whether the currency or the economy collapses. The mistakes of central banks, especially the ECB,
have not only been made in recent months but go back years.

And the bond crash is not a result of rising interest rates. That is fundamentally wrong. The value of a bond falls or rises depending on market conditions.
For example, if Italy is struggling and has to issue new bonds, the value of Italian bonds does not fall because of interest rate increases. No, the market value falls because investors sell. As a result, interest rates rise.

Declining bonds then lead to central bank interest rate hikes, and demand for government bonds increases due to higher yields. Stocks become less attractive. Rising demand for government bonds leads to increasing bond costs, whose yields then fall. This would subsequently lead to lower financing interest rates.

However, since states and companies have to incur more and more debt, and inflation remains high, the supply of bonds expands significantly, causing prices to fall. Supply and demand.

The construction industry and small homebuyers do not interest the central banks.

I was in Austria recently, and food prices there are already enormous. Not everything, but many things are partly double the price in Germany. There is no sign of inflation containment. When the toll increases here by 83 percent from 12/01, we will see the next wave of price increases here.

Oh dear.

(five words, where one would suffice)