It should return in detail today on these concerns

The performance of the French State for 10 years borrowing crossed yesterday down a new historic Cape. In a year, he moved from 4.40 to 3.14. "Long rates are the lowest since the second world war", welcomed Jean-Claude Trichet, the President of the European Central Bank (ECB) sees "good news for the economy."

At the beginning of the year, few managers have dared to bet on as relaxing. In General, all the bond markets are oriented in the same direction. In the United States, performance of the 10-year benchmark loan stood at 3.90 4.70 a year ago. "The market fears a slowdown in industrial activity in the United States in the second quarter on a background of latent concern on the actual position of the"hedge funds"and their capacity to honour their commitments of results summarizes Valerie Plagnol, Chief Strategist at CIC markets." In these circumstances, investors are looking for paper offering total security to protect themselves, i.e. State bonds. "The question is whether a movement of such magnitude can register in the long term. Interviewed on this subject at a conference yesterday in the French Association of treasurers of company (AFTE), the Governor of the Bank of France, Christian Noyer, indicated that it could not "living on the idea that long-term interest rates are still low" and that the very abundant liquidity could not "last forever".

Unidentified reasons

But it seems difficult to determine at what point precisely the flipping happens, insofar as the reasons for the current level are not all clearly identified.

One possible explanation lies in the fact that it is confirmed every day that the European Central Bank is placed in a completely neutral way on its next monetary decisions. However, there are a few months, it was rather the impression of wanting to raise rates before the end of the year. Markets have incorporated this idea and some have even started to go further: in December Euribor futures give a probability of one in three in a drop of 25 basis points at this time. There is nothing in the language of the members of the ECB to however to validate such bet.

In fact, Nout Wellink, the Governor of the Central Bank of the Netherlands, yesterday said that it was not fundamentally important that "rates are changing to a quarter or half a percentage point below" from their current level. The President of the Federal Reserve, Alan Greenspan will have to turn the opportunity to return, today, on this movement of the long rate which remains a "mystery" in his eyes. This afternoon, he will issue his semi-annual testimony on the economic situation of the United States before the US Congress. A message that the operators will follow with attention insofar as it will inform the future monetary decisions that could take the Central Bank.

Inversion of the yield curve

Alan Greenspan should also return to this occasion on a theme he has already developed Tuesday: the risks of inversion of the yield curve, i.e. a passage from the short rate over long rates ("Les Echos" of yesterday). "We are in a very special situation, because previously the inversions of rate curves were caused by a rising short rates faster that one long rates eventually go below, said Valerie Plagnol." However, this time it's the opposite occurs: these are long rates fall and are falling under the short rate.

The risk, with one such schema, lies in the fact that a relaxation of the long rate pushes the consumers to ask credit to their banks, which cannot deny it them. However, as banks re-finance on short rates, the inversion of the curve that threatens to affect their results. "This pushes to strengthen on derivatives markets to generate more profits and it is one of the main reasons of concern for Alan Greenspan, which he continues to warn," said Valerie Plagnol. It should return in detail today on these concerns.