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Interest rates are hardly alarming, with 10-year U.S. Treasury yields under 2 per cent. But assuming the economic recovery continues, market forces will push rates higher and the Federal Reserve will have to start reversing its expansionary monetary policy. That's not just a question of raising short-term interest rates, which could be some years off. Even curbing its $85-billion (U.S.) of monthly bond purchases, a program known as quantitative easing or QE, could change the game.

That could happen as early as this year if the labour market improves faster than expected. Even since the 2008 crisis, the 10-year yield has on occasion reached 4 per cent. If it hit that level again – never mind the long-term average, which is above 6 per cent – there will be big losers, and some winners, too. Breakingviews has identified six forces that will come into play.

Bonds take a hit

It won't take much for gains made over the past year to evaporate. Just a 0.2-percentage-point rise in yields would wipe out a year's worth of total returns on Treasuries, according to BlackRock. Double that, and investors in slightly riskier investment-grade corporate bonds would go back to square one from a year ago. Vanishing returns could make matters worse by persuading some investors to rush for the exits, causing yields to rise faster and losses to mount further.

Lenders and home buyers suffer

Mortgage refinancing has been a boon for banks like Wells Fargo, JPMorgan and others, which collect fees for writing new loans. But homeowners will no longer have an incentive to refinance when interest rates rise. If the cost of home loans rises sharply enough, housing prices could suffer too.

Munis feel the squeeze

Most U.S. states, cities and smaller public borrowers issue debt due in five, 10 or 30 years. The longer a bond's lifespan, the bigger the potential loss for investors when yields increase. More than two years ago, investors fled the municipal bond market when the 30-year Treasury yield jumped 0.8 percentage point in just three months. Big, well-known borrowers like California should still be able to borrow, but struggling school districts, local governments and other infrequent issuers could find an important source of financing cut off.

Rate rise can lift stocks

Now for the winners. Contrary to what's often assumed, stock investors may gain as interest rates rise. Stocks can be hammered when the Fed lifts rates because the central bank is trying to slow things down. But when economic expansion is the driver and the Fed is following, shares can do well. S&P 500 companies with a market cap of $10-billion or more rose 11 per cent on average in 1999 and 3 per cent in 2004 in the six months before the Fed raised rates, according to Citigroup. With the S&P up 10 per cent this year, investors may have already priced an end to QE into share prices. But with an expected lull before short-term rates go up, there could be scope for further gains.

Savers and pension funds earn

Depositors have been hurt by low interest rates, which have also made it harder for pension funds to make the returns they need to cover their promised outlays. Higher yields would at least allow investors to make a meaningful, safe return on their cash again. But real relief might have to wait until the Fed raises short-term rates, which the central bank doesn't expect to do until 2015 – and in the meantime rising rates could dent the capital value of savings.

Banks in the money again

Low rates compressed net interest margins – the difference between what banks pay on short-term borrowings and earn on longer-term loans and investments – to a five-year low of 3.32 per cent in the fourth quarter of 2012, according to the Federal Deposit Insurance Corp. Ending or slowing QE could cause longer-term yields to rise, while the Fed initially keeps short-term rates very low. That should boost bank profits, offsetting some or all losses on their holdings and reduced income from writing mortgage loans.

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