>SPECIAL REPORT (ECONOMIC RESEARCH)

Rise in long-term interest rates: Some explanations are convincing, others are not

The rise in long-term interest rates (particularly in the United States) is very bad news, since a fall in longterm interest rates was the only policy left for central banks.

What accounts for this rise?
− inflationary risk due to the scale of monetary creation? But if expected inflation rises, there is no real inflation risk and, moreover, the US and European economies will remain very weak for a long time to come;

− crowding-out effects due to the size of the expected public debts? But private indebtedness
continues to fall and the savings rates keeps rising;

− contagion from higher returns that can now be obtained, for instance on emerging-country
equities, due to the economic recovery in Asia? This third argument (correlation of bond yields in
the United States and Europe with returns on other financial assets) seems the most reasonable in our view; it corresponds to a return of capital flows to emerging countries.

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