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Scenarios for normalisation of the level of interest rates
Long-term interest rates are historically low. This article looks at interest rate developments in previous cyclical upswings and considers various scenarios for the future path of interest rates. There have been previous examples of substantial increases in long-term interest rates over a short period of time, e.g. in both 1994 and 1999, when the 10-year bond yield rose by more than 2 percentage points. There is a risk of large capital losses on bond portfolios if long-term interest rates rise substantially. It is important that both investors and credit institutions focus on risk management and have the necessary buffers against potential losses.