In April, French 10 years Bonds interest rate has fluctuated between -0.07% and +0.08%. That astonishing stability brings at first a serious denial to these who for years are announcing that low rates are a disorder and that they will inevitably rebound. The situation is not characteristic of France. In several other European countries, sometimes more indebted, rates remained at a very low level. In the United States, uncertainties about the new president economic policy and his ability to make it approved by the Congress had brought some volatility. But the 10 years Bond has never exceeded 1.75%, the level where it was before the start of the pandemic.

The immediate consequence for every country is a strong and long-lasting reduction of the debt charge in the budget. In France, the charge has fallen in five years by near 10 billion euro and the fall will last, despite the indebtedness increase, consequence of the supporting economic policy and of the rebound plan which will occur this year. This diminution is frequently badly understood. It results from the reimbursement, year after year, of past bonds which were carrying very high rates and from their replacement by the current bonds which will keep all along their duration near zero rates. The France Tresor Agency, which manages the French public debt, has indicated that since the beginning of the year the average duration of issued mid and long term bonds was superior to nine years. Regarding short-term ones, which amounts to about 160 billion euro in the 2 000 billion State debt, they carry negative rates (-0.60%) which brings backs to it near one billion euro.

This situation has not been affected by the light inflation rebound but we won’t see again in the developed countries the prices rises observed during the Seventies. Commodities, there again to the contrary of alarming forecasts, are abundant, international competition plays its role in keeping a pressure on prices and innovations have allowed productivity gains that the development of digital economy will amplify in the future. But the very moderate tension we observed since the beginning of the year, which comes from the strong economic rebound, notably in China, and from weather conditions which affect fossil fuels and foods products leads to reduce even more the real cost of the indebtedness. If inflation is 1.5% and if the rates are at zero the real interest rate is -1.5%, i.e. even lower than during the harshest moments of the 2020 recession.

The interest rates situation wouldn’t change at least during the next two years. Announcements by the Federal Reserve chairman, Jerome Powell, are turning down the coming back to a more restrictive monetary policy. So the fluctuations of the Bonds rates which have generated abundant comments are not the forewarnings of a durable rebound, despite the very strong increase of the public financing needs resulting from the measures announced by the Biden administration. In the euro-zone, the European Central Bank has confirmed that the Public Bonds buying Special Program, launched to help the States to cope with the pandemic would be extended at least until 2023. The “frugal” countries have been obliged to bow to and the constitutional obstacles in Germany have been, until now, overcome. So, short as mid and long term rates will remain at levels near their current ones. The reduction of the public debts budget charge will go on. In order to having a reverse tend, it would be necessary that long term rates rebound at a higher level than the one carried by bonds coming at maturity and it is definitely not for tomorrow.

But the consequences of that situation on economic activity are more complex that it is usually thought. Regarding household, the low return has not impeached them to constitute, at a record level, a precautionary saving. Only a small minority has taken advantage of the stocks fall during the crisis to invest there a part of his saving. The low rates offered by banks have not more incited them to acquire a home. In France, we note, on the last twelve months compared with the previous period, a 17.4% fall of authorized housing permits and a 9.5% fall of housing starts. The restrictions regarding the non-essentials activities which frequently are related to durable equipment goods have weighted on consumer credit demand. So, the impact of the interest rates diminution on household has been very low.              

It has not more inclined enterprises to invest and so to prepare the future and to create jobs. Worries about the rebound have inclined them to cautiousness and the priority has been given to their survival with the recourse to State guaranteed loans to go through the crisis. Regarding the lowly affected activities, they have taken profit of their financial costs diminution which allowed them, for the current financial years, to registering more favorable than initially expected results. In reality, the interest rates fall has only profited to States and financial markets.

The maintenance of so low rates has allowed not only to adopting the supporting measures in favor of enterprises which have avoided a failures wave but also to financing the rebound policy. France, especially, has taken advantage because the country has a high current account deficit. Without Europe and the euro, the risk was real to have to offer very high interest rates, both to support the currency and to attract foreign capitals, necessary to finance public deficits, i.e. to be in a situation which reminds Argentina or Turkey ones. We will never say enough to which point euro has allowed France to go through this crisis and we will never enough put these who want to break with European Union in guard.

The other major beneficiaries have been the stocks markets. It is not a hazard if in the U.S. as in Europe, records have been beaten. Sure, the situation of many companies has been preserved but it is the available capitals abundance which has been at the origin of these records. Atop of that, offered returns are much more attractive due to the low interest rates levels. Investors and, behind them, savers, have been numerous to accept the risk attached to any financial asset.

Historically, it is the financial crisis which has been at the origin of recessions, as in 1929 in the U.S. and in 2007-2008 in developed countries. Now, the world is in the opposite situation. The sanitary crisis has provoked a major economic crisis but the adopted measures have provoked a financial markets and enterprises values rapid rise without any report to their current results. The main risk today, and the central banks would take conscience of it, it is not the goods and services prices increase but, really, some financial assets one which is arising indirectly from their action. Time has come, for them as for, behind them, the States to prepare themselves to face this new risk. If not, a major financial crisis would reduce to nothing the efforts made to get out of the sanitary crisis.