Dec 16, 2025
3 min read
The yield on ten-year federal bonds is approaching a critical level.FOCUS MONEY analyzes why rising interest rates can lead to big losses for reliable investors.
There is a risk of losing up to 20 percent
Yield Risk: Which Fed Bonds Are At Risk Now?
Yields on 10-year federal bonds are approaching a critical level.FOCUS MONEY analyzes why caution is advised and why raising interest rates can mean painful losses, especially for investors who rely on security.
By Dirk Reichmann
Something is brewing in the bond market.Rising interest rates on ten-year German government bonds may explain why this may worry some investors.If the yield exceeds 3% next week, the second phase of the upward movement should begin – perhaps as strong as the first.
FOCUS MONEY explains what is driving interest rates on German government bonds, how they will rise, and the impact of rising yields on the stock market, especially for investors who need their money in the coming months.
Chart technicians, ie analysts that monitor the futures of stocks, interest rates or currencies with a ruler and pencils are currently alerting the critical key figures such as P / E ratemental potion) or book values.
Excellent results for investors
Anyone who invests for the long term can sit back and read at this point.He is more interested in the fact that the bank may soon offer him a better rate of interest on his money.However, investors nearing retirement who, as a precaution, have shifted their money from the stock market to safer and more stable federal bonds, could face painful losses if they sell their federal bonds amid a sharp rally.There is no time to sell the interest and wait until the end of the term.
A ten-year government bond with a coupon of three percent and a price around 100 can lose up to 20 percent of its value if the yield rises to 5.5 percent.This is just an estimate.The actual loss is also determined by other factors such as the choice of calculation method or the remaining time.
However, this table can give investors an indication of how federal bond interest rates can affect prices.
Why do “safe” bonds lose value?
First of all, good newsGermany's creditworthiness remains unchangedThe reason for the potential loss in government bonds is different: if the market yield rises above the coupon, the price must fall so that the current coupon and repayment values cause that higher yield.
But why should interest rates suddenly rise again?Finally, on December 10, the US Federal Reserve lowered its benchmark rate for the third time in a row.
The FOMC is a committee that controls the monetary policy of the United States."Doves" wanted the key interest rate to be lowered, "hawks" did not want it.Some look at a solid labor market and economy, others at very high inflation.
Important point: Yields on ten-year bonds in the United States showed a rather boring response to the Fed's actions.Neither the United States nor German federal bonds saw significant declines.Interest rate markets are looking to the future: Fed chief Jerome Powell signaled a pause on further interest rate cuts.The central bank also raised its growth forecast, which supported yields.
What will happen next to interest rates?
This is an often accepted argument, and it is not wrong.However, the cost of money is also interest.Higher interest rates indicate that bond investors perceive more risk.This could be due to several factors:
- Inflation expectations.When investors expect prices to rise, they demand higher returns to compensate for the loss in purchasing power of their money.
- Creditworthiness of the issuer: In the case of government bonds, high interest rates indicate a lack of confidence in the government's ability to repay the debt.Investors then demand a high risk premium in the form of interest.Countries' debt plays a big role here.
Both factors do not necessarily occur in isolation; they can also shake up the interest rate markets in combination.Both inflation expectations and creditworthiness are a kind of "vote of no confidence".This is not particularly noticeable at yields of three, four or five per cent, but can lead to problems in the long term at higher yields.
What investors should know now
Anyone who has invested in government bonds and wants to do so should know that the 10-year German government bonds are very valuable. According to the Bloomberg news agency, DEX's price-earnings ratio (P/E) is currently healthy at 17. The 10-year German federal bond has a P/E ratio of 35, more than double that.
To determine a bond's P/E ratio, divide 100 by the yield.If the 10-year German government bond yield is 2.86 percent, the result is 34.9 (100/2.86).If the yield on the 10-year German government bond rose to 5.5 percent, its P/E ratio would be 18.2 (100/5.5).The Dax stock index and the 10-year federal bond would be valued roughly the same.if Dax hadn't moved.
The fact that the stock market valuation could be on par with federal bonds, which are considered "risk-free," suggests that stocks are moderately valued in historical comparisons and relative to bonds.However, this is a simplistic comparison that ignores important factors.Bonds offer fixed repayment and a lower risk of default (German government bonds in particular are considered very safe), while stocks are associated with corporate risk and volatility.
However, comparisons suggest that German government bonds are not necessarily the first choice today, especially for investors who want the so-calledsafe security that will bring peace to their portfolios before they retire and need funds before the end of the bond period.
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