In two days, there has been an unusually strong upward pressure on long-term market interest rates in the European market. Behind the development lies the German fiscal policy U-turn on the country's so-called debt brake, to bring about new massive investments in defense and infrastructure.
SEB strategist Amanda Sundström shares Christina Sahlberg's view of the effects.
It will have a fairly immediate effect. If you get higher borrowing costs, it will also be reflected in higher mortgage rates, says Sundström.
She adds that it can also turn downwards quickly.
Besides households wanting fixed-rate mortgages, higher interest rates can also have consequences for companies and states with imbalances and high debt levels.
Does not change as often
The interest rates on a ten-year Swedish government bond have, in the wake of the German announcement on abolishing the debt brake, risen from 2.35 percent on Tuesday afternoon to around 2.65 percent on Thursday afternoon. This interest rate hike of 0.30 percentage points will sooner or later spread to the credit market – including the bonds that banks use to finance fixed-rate mortgages.
When and how much the fixed mortgage rates will follow suit varies, according to Sahlberg.
Fixed mortgage rates do not change as often as variable rates, she says.
Fixed mortgage rates – which banks largely finance with long-term bond loans – have already been pushed upwards earlier this winter by higher long-term market interest rates. But then the origin was the USA, not Germany.
Unexpectedly high inflation
The hike in long-term market interest rates is happening in parallel with the Swedish krona having strengthened significantly. The stronger krona reduces the risk of global inflation – feared to come from the trade war started by the Trump administration – spreading to Sweden through import prices.
So-called variable mortgage rates with a three-month binding period are not affected in the same way by the higher long-term market interest rates. They are instead determined by the Swedish Central Bank's repo rate.
The repo rate is set based on how Swedish inflation develops. And since inflation in Sweden has been clearly higher than expected in both January and February, the market has now essentially stopped believing in further repo rate cuts.
