pfp Advisory: ''Higher interest rates are creating a turbulent “new world”

October 12, 2026. FRANKFURT (pfp Advisory). When I first became interested in the capital markets in the early 1990s, as a novice I soon came across the step-rate bonds known as “Bundesschätzchen,” which the Federal Republic of Germany issued through the Federal Debt Management Office. I still remember how thrilled I was by the interest coupons of 7.00% or even 9.00% (in the seventh and final year). That was already significantly more attractive than the 2.50% or 3.00% typically offered by traditional savings accounts at the time. The solid German government as the issuer, up to 9% interest, more than 8% per year in effective yield over the entire term… Even as a complete novice, I understood that this was a very attractive combination. (The fact that I nevertheless never bought federal treasury notes was simply because, shortly thereafter, I discovered stocks, which I found to be a much more appealing asset class.)

Some 35 years later, Federal Treasury Notes have long since ceased to exist, as has the Federal Debt Administration in Bad Homburg, which was transformed into the German Finance Agency in Frankfurt. Interest coupons of 9% on German government bonds or a current yield of nearly 8.5% are also long gone. However, interest rates appear to have bottomed out by now, as the current-market yield has risen since 2020 from levels below 0 to about 3.5%—the highest level since the 2008 financial crisis.

For me—having experienced nothing but falling interest rates for nearly 30 years of my “investing career”—this is a whole new world. And “world” should be taken quite literally here, because the phenomenon of sharply rising interest rates is by no means limited to Germany. For example, in the U.S.—the world’s largest and most important capital market—the yield on 10-year Treasury bonds has risen from around 0.5% during the COVID-19 pandemic to over 5.3%, the highest level in 25 years. Even in the “safe haven” of the U.S., bond investors are now demanding substantial interest rates.

Personally, this doesn’t surprise me, as I view the behavior of U.S. President Donald Trump and his Treasury Secretary Scott Bessent with some unease. The U.S. national debt has ballooned to over 40 trillion (German, not American “billions”) U.S. dollars. If a uniform interest rate of 5% were applied to this debt, the U.S. would have to set aside 2 trillion dollars year after year just to service the debt before it could invest even a single cent in social spending, defense, or infrastructure. So far, I have yet to see any plans—let alone effective measures—to at least prevent this mountain of debt from growing even further. Instead, Trump is unwaveringly undermining the independence of the Federal Reserve, operating with a budget deficit of approximately 6%, and promising costly handouts if U.S. voters help the Republican Party secure victory in the midterm elections. Bessent, on the other hand—who in his earlier career was actually a respected figure in the capital markets—recently astonished not only me with what appeared to be desperate interventions in the financial market, which further undermine the credibility of U.S. fiscal policy.

Unfortunately, all of this creates a complex situation that not only bond investors but also shareholders must keep an eye on. Even extreme scenarios (such as the issuance of U.S. forced bonds in exchange for military aid), which I considered virtually impossible just a few years ago, must now be factored in along with their side effects. Similarly, specific impacts on individual industries should be analyzed, such as stricter regulation designed to compel insurance companies to purchase government bonds. Apart from that, in an environment of rising interest rates, first, bonds tend to become more attractive relative to stocks, and second, refinancing becomes more expensive for corporations. Companies with high debt levels will be hit harder by the higher interest rates than those with low levels of debt. For my—or rather, our—investment style at pfp Advisory, however, little will change, as we have always prioritized a solid balance sheet structure in our investments. In any case, shareholders in the “new world” should incorporate not only their traditional stock market but also the bond market into their strategies.

By Christoph Frank, October 12, 2026, © pfp Advisory

About the Author

Christoph Frank is a managing partner at pfp Advisory GmbH. Together with his partner Roger Peeters, this expert—who has been active in the German stock market for over 25 years—manages the DWS Concept Platow (<LU1865032954>), a multi-award-winning stock-picking fund launched in 2006, as well as the pfp Advisory German Small Caps (<LU2616373085>). For more information, visit www.pfp-advisory.de. Frank writes regularly for Deutsche Börse Frankfurt.