Long-term interest rates will not fall, even after rate cuts – Natixis

Analysts at Natixis are out with a note highlighting how long-term rates are unlikely to see declines, even after central banks start to chop down rates after the cycle peak.

Long-term interest rates will not fall, even when central banks cut interest rates

We argue that the current rise in nominal long-term interest rates (in the United States, the United Kingdom, the eurozone) is irreversible. Even when central banks cut interest rates, long-term interest rates will remain high.

The fall in short-term interset rates is already anticipated... expected short-term (3-month) interest rates for the end of 2024 and the end of 2025, and see that they are already expected to fall.

The rise in expected inflation in the eurozone and the United Kingdom reflects a decline in central bank credibility, which is very difficult to correct.

US real 10-year interest rates have returned to close to their average level of the past, but UK and eurozone rates are still well below this level.

Two mechanisms will drive up real long-term interest rates: the fact that spontaneous inflation will be higher than 2%, due to the inflation effects of the energy transition, reshoring and persistent labour market tightness; and the shortfall in savings relative to investment.