Markets think interest rates could stay high for a decade or more

NOT LONG ago, as interest rates in the rich world hovered near zero, economists debated whether their downward march was the product of a decades-, centuries- or millennia-long trend. Now the burning question is how long they will stay high. On October 18th the ten-year Treasury yield, which incorporates long-term expectations for interest rates and was below 1% as recently as 2021, hit 4.9%, its highest since 2007. The 30-year Treasury yield crossed 5% the same day.

Commercial property loans make up around a tenth of bank assets, and the value of office buildings has collapsed owing to higher interest rates and lower occupancy. Some owners have simply handed the keys to lenders. What is more, much lending has migrated in recent years from banks to other sorts of financial institutions, such as pension funds and insurance firms. They have never gone through a cycle of rising rates as big lenders before.

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