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- A modest rise in long-term interest rates is beneficial – Natixis
A modest rise in long-term interest rates is beneficial – Natixis
FXStreet reports that economists at Natixis believe this rise in long-term interest rates is not dangerous, and may even be good news for several reasons.
“As long as long-term interest rates are lower than growth rates, there cannot be any solvency problem for borrowers, since debt ratios spontaneously decline (debt increases at the rate of interest and so is outpaced by income growth). In this configuration, asset values can remain very high, since assets’ fundamental value is infinite: the discounted sum of future dividends or rents tends to infinity as long as the interest rate is lower than growth.”
“The steepening of the yield curve has the beneficial effect of lifting banks’ profitability by increasing intermediation margins, thereby enabling an increase in the supply of bank credit. A gradual rise in long-term interest rates reduces the risk of asset price bubbles and abnormally low risk premia.”
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