How far will interest rates run?
Summary
- Interest rates have risen due to elevated inflation and growth expectations, increased government borrowing, and reduced Federal Reserve participation in the bond market.
- The US 10-year interest rate has reached levels last seen in 2007, with the 30-year bond auction interest rate rising to 5.2%, the highest since 2001.
- Rising interest rates present both challenges and opportunities for investors, affecting growth company valuations while offering better returns in the bond market.
- Despite higher real interest rates, European and US economies have remained stable without significant disruptions.
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Automatic translation: Originally published in Finnish 16/08/2026, 14:09 GMT. Give feedback here.
Last week was a rising week for the Helsinki and US stock markets, but the Stoxx 600 index weighed slightly into negative territory. Something has quietly happened in the interest rate market, as elevated growth and inflation expectations, as well as increasing government borrowing, have pushed interest rates up.
| Indexes | closing | change 1 wk | year to date | |
| OMX Helsinki | 13514,5 | 2,4 % | 8,8 % | |
| Eurostoxx 600 | 657,9 | -0,4 % | 11,1 % | |
| S&P500 | 7785,8 | 0,4 % | 13,7 % |
"How far will interest rates run?" a financial Badding could have sung decades ago, as in the late 1970s, the interest rate in the United States rose to over 10% and further to nearly 15% in the early 1980s. A quiet turnaround has again been seen in the interest rate market, and the 10-year interest rate has risen to levels last seen in 2007, almost two decades ago.
US 10-year rate, %
Source: LSEG
Source: Bloomberg
So what has happened? Verneri went through this in his excellent "Vartti" (a short video update) in early August. In short, the situation is this: the rise in interest rates is due to a complex web of different factors: elevated inflation and growth expectations, and indebted governments and the private sector (due to AI demand) are certainly at the forefront. Thus, interest rates have, in a way, baked in both good and bad. A striking example of the pressure seen in the interest rate market was the US auction of 30-year bonds worth 25 BUSD, where the interest rate rose to 5.2%. This is the highest since 2001 and means that bond investors want ever greater compensation in return for financing the federal government. In addition to the factors mentioned above, interest rates are also affected by the Fed's disappearance from the federal debt market. Its ownership of US government bonds has fallen to 13.8%, or 4,000 BUSD, according to Bloomberg data, whereas five years ago, the share was 24.4%. The change is dramatic, while the amount of debt has grown sharply in absolute terms.
Federal Reserve's holdings in the US bond market, BUSD
Source: Bloomberg
From an investor's perspective, rising interest rates are both a threat and an opportunity. Rising interest rates particularly weigh on the valuations of growth companies but also offer new opportunities and better low-risk returns from the bond market. If the bond market's predictions of strong economic growth materialize, the situation is considerably easier than grappling with inflation and debt monsters. It is also positive that even though real interest rates have risen to a multi-year high, the economies in both Europe and the United States have withstood it without anything "breaking."
