Bank of England base rate (tracker)-fluctuations crystalball
Discussion
How about this :
A recent Reuters poll demonstrates how rate rise fears have evaporated - a result of renewed expectations that the European debt crisis will lead to a double-dip recession for the world economy.
Only 30% of economists expect a rate hike by year-end, well down from 55% forecast in the previous month's poll (2 June).
Median forecasts from the poll suggest the bank rate would be raised in the first quarter of next year (Jan to March 2011) to 0.75%, then to 1.0% by June and would finish the year at 2.0%.
Prior to recent events, markets had begun to price in a greater chance of rate rises in 2010 because of higher-than-expected British inflation. But as we've repeatedly argued on this round-up, deflation rather than inflation is the greater long-term threat
A recent Reuters poll demonstrates how rate rise fears have evaporated - a result of renewed expectations that the European debt crisis will lead to a double-dip recession for the world economy.
Only 30% of economists expect a rate hike by year-end, well down from 55% forecast in the previous month's poll (2 June).
Median forecasts from the poll suggest the bank rate would be raised in the first quarter of next year (Jan to March 2011) to 0.75%, then to 1.0% by June and would finish the year at 2.0%.
Prior to recent events, markets had begun to price in a greater chance of rate rises in 2010 because of higher-than-expected British inflation. But as we've repeatedly argued on this round-up, deflation rather than inflation is the greater long-term threat
Here's what Barron's said about the US situation:
"THERE'S MORE TO LIKE ABOUT Treasuries other than the lack of alternatives. Even though their yields are down substantially from early April—when the benchmark 10-year note was 4% and the conventional wisdom said it had nowhere to go but up—don't be surprised if it drops back below 3%.
One big reason is that the outlook for Fed policy is for lower and for longer. When the Federal Open Market Committee breaks up its two-day meeting Wednesday afternoon, there's no doubt the panel will reaffirm its 0-0.25% target range for the federal funds rate and, more importantly, its intention to maintain those exceptionally low short-term borrowing costs for "an extended period."
That period keeps getting extended farther out. Back in early April, the fed-funds futures market was pricing in an increase to a 0.5% target rate by December. Now, the futures market is looking to May 2011 for the first increase in the key rate.
Fed watchers are steadily moving out their forecast for the central bank to move. J.P. Morgan's highly respected economics team last week revised its outlook for the first Fed hike to the fourth quarter of 2011 from the second quarter, largely because of the continued decline in inflation, especially wages. Even barring any negative impact on the U.S. from the turmoil in Europe, "the recent decline in inflation is pushing up real interest rates at a time when the labor market is woefully far from full employment," economist Michael Feroli writes, and the Fed doesn't want to push them still higher.
And the jobs situation doesn't show any signs of improvement, with the latest tally of initial unemployment claims jumped to 472,000. Moreover, the Weekly Leading Indicator from the Economic Cycle Research Institute is down sharply for the past six weeks, although ECRI director Lakshman Acuthan says the slide hasn't been sustained long enough to signal "an imminent recession," hardly a ringing vote of confidence. By the sheerest coincidence, the ECRI Weekly Leading Indicator's drop has coincided with the slide in Treasury yields and the stock market's correction from its recent highs.
The real problem is that the economy remains mired in a debt-deflationary cycle from which the only way out is through paying down the debt. Nomura chief U.S. economist David Resler says that, even after households paid down debt for the seventh straight quarter in the first quarter, the process still has a long way to go. That, even with a $374 billion reduction in household borrowing from its peak of $13.9 trillion in the second quarter of 2008, with most of the drop coming in mortgage debt.
In fact, financial deleveraging has just begun, according to BCA Daily Insights, a publication of the Bank Credit Analyst. That points to renewed underperformance by financial stocks, which has started during the market's current corrective phase, it adds.
The financial sector has enjoyed a profit rebound in recent quarters, which has powered its big rebound from the crisis lows of March 2009. But the easy money, as the cliché goes, has been made.
"However, much of that appears to have been due to the fact that banks are paying next to nothing on deposits and are able to generate much higher returns on government paper," according to BCA. " The end of the implosion in credit quality has also helped support profits, but there has been a massive amount of wealth destruction. This implies that credit creation will remain weak and it will be difficult for the financial sector to re-expand."
As long as credit growth remains flaccid, hiring stays weak and inflation non-existent, there's no logical reason for the Fed to start tightening. And with short-term rates (and inflation) hovering near zero, a sub-3% 10-year Treasury and a long bond under 4% hardly seem unreasonable".
"THERE'S MORE TO LIKE ABOUT Treasuries other than the lack of alternatives. Even though their yields are down substantially from early April—when the benchmark 10-year note was 4% and the conventional wisdom said it had nowhere to go but up—don't be surprised if it drops back below 3%.
One big reason is that the outlook for Fed policy is for lower and for longer. When the Federal Open Market Committee breaks up its two-day meeting Wednesday afternoon, there's no doubt the panel will reaffirm its 0-0.25% target range for the federal funds rate and, more importantly, its intention to maintain those exceptionally low short-term borrowing costs for "an extended period."
That period keeps getting extended farther out. Back in early April, the fed-funds futures market was pricing in an increase to a 0.5% target rate by December. Now, the futures market is looking to May 2011 for the first increase in the key rate.
Fed watchers are steadily moving out their forecast for the central bank to move. J.P. Morgan's highly respected economics team last week revised its outlook for the first Fed hike to the fourth quarter of 2011 from the second quarter, largely because of the continued decline in inflation, especially wages. Even barring any negative impact on the U.S. from the turmoil in Europe, "the recent decline in inflation is pushing up real interest rates at a time when the labor market is woefully far from full employment," economist Michael Feroli writes, and the Fed doesn't want to push them still higher.
And the jobs situation doesn't show any signs of improvement, with the latest tally of initial unemployment claims jumped to 472,000. Moreover, the Weekly Leading Indicator from the Economic Cycle Research Institute is down sharply for the past six weeks, although ECRI director Lakshman Acuthan says the slide hasn't been sustained long enough to signal "an imminent recession," hardly a ringing vote of confidence. By the sheerest coincidence, the ECRI Weekly Leading Indicator's drop has coincided with the slide in Treasury yields and the stock market's correction from its recent highs.
The real problem is that the economy remains mired in a debt-deflationary cycle from which the only way out is through paying down the debt. Nomura chief U.S. economist David Resler says that, even after households paid down debt for the seventh straight quarter in the first quarter, the process still has a long way to go. That, even with a $374 billion reduction in household borrowing from its peak of $13.9 trillion in the second quarter of 2008, with most of the drop coming in mortgage debt.
In fact, financial deleveraging has just begun, according to BCA Daily Insights, a publication of the Bank Credit Analyst. That points to renewed underperformance by financial stocks, which has started during the market's current corrective phase, it adds.
The financial sector has enjoyed a profit rebound in recent quarters, which has powered its big rebound from the crisis lows of March 2009. But the easy money, as the cliché goes, has been made.
"However, much of that appears to have been due to the fact that banks are paying next to nothing on deposits and are able to generate much higher returns on government paper," according to BCA. " The end of the implosion in credit quality has also helped support profits, but there has been a massive amount of wealth destruction. This implies that credit creation will remain weak and it will be difficult for the financial sector to re-expand."
As long as credit growth remains flaccid, hiring stays weak and inflation non-existent, there's no logical reason for the Fed to start tightening. And with short-term rates (and inflation) hovering near zero, a sub-3% 10-year Treasury and a long bond under 4% hardly seem unreasonable".
hora said:
dibbly dobbler said:
How about this :
A recent Reuters poll demonstrates how rate rise fears have evaporated - a result of renewed expectations that the European debt crisis will lead to a double-dip recession for the world economy.
Only 30% of economists expect a rate hike by year-end, well down from 55% forecast in the previous month's poll (2 June).
Median forecasts from the poll suggest the bank rate would be raised in the first quarter of next year (Jan to March 2011) to 0.75%, then to 1.0% by June and would finish the year at 2.0%.
Prior to recent events, markets had begun to price in a greater chance of rate rises in 2010 because of higher-than-expected British inflation. But as we've repeatedly argued on this round-up, deflation rather than inflation is the greater long-term threat
Worsecase scenario it'll up to 2% in the next two years? I could live with that as a worsecase scenario. A recent Reuters poll demonstrates how rate rise fears have evaporated - a result of renewed expectations that the European debt crisis will lead to a double-dip recession for the world economy.
Only 30% of economists expect a rate hike by year-end, well down from 55% forecast in the previous month's poll (2 June).
Median forecasts from the poll suggest the bank rate would be raised in the first quarter of next year (Jan to March 2011) to 0.75%, then to 1.0% by June and would finish the year at 2.0%.
Prior to recent events, markets had begun to price in a greater chance of rate rises in 2010 because of higher-than-expected British inflation. But as we've repeatedly argued on this round-up, deflation rather than inflation is the greater long-term threat
I was worried about inflation picking up and cancelling out any 'benefit' of a Tracker over a Fixed and then become worse and worse still...
Edited by hora on Sunday 20th June 16:56
PS - I am just a punter so my opinions are to be taken with a pinch of salt !
NoelWatson said:
dibbly dobbler said:
My personal take on it is that the banks will only offer fixed rate deals on the basis that they will make money on them
Why would that not be the case?
dibbly dobbler said:
NoelWatson said:
dibbly dobbler said:
My personal take on it is that the banks will only offer fixed rate deals on the basis that they will make money on them
Why would that not be the case?NoelWatson said:
dibbly dobbler said:
NoelWatson said:
dibbly dobbler said:
My personal take on it is that the banks will only offer fixed rate deals on the basis that they will make money on them
Why would that not be the case?
king idea Noel ! You tell the OP what to do - I'm off 
dibbly dobbler said:
NoelWatson said:
dibbly dobbler said:
My personal take on it is that the banks will only offer fixed rate deals on the basis that they will make money on them
Why would that not be the case?I was of the view that rates would begin to climb this year and overshoot due to the money printing of the last 24 months.
However, rates will only need to rise when inflation and spending increases. These can be supressed through 'cuts' rather than rate rises for a considerable period of time.
The BoE knows that rising rates will be deadly for a significant proportion of the working section of society and is likely to favour reductions in spending so as to maintain favourable rates for the foreseeable future.
When rates do rise, and they have to at some point, it will have a devastating effect on property values, but instead of this being this year as I previously believed it is more likely to be in 2/3 years time. There has to be a fundamental property correction but it is pretty essential that this does not occur at this stage of the cycle but is pushed back as far as possible.
However, rates will only need to rise when inflation and spending increases. These can be supressed through 'cuts' rather than rate rises for a considerable period of time.
The BoE knows that rising rates will be deadly for a significant proportion of the working section of society and is likely to favour reductions in spending so as to maintain favourable rates for the foreseeable future.
When rates do rise, and they have to at some point, it will have a devastating effect on property values, but instead of this being this year as I previously believed it is more likely to be in 2/3 years time. There has to be a fundamental property correction but it is pretty essential that this does not occur at this stage of the cycle but is pushed back as far as possible.
DonkeyApple said:
When rates do rise, and they have to at some point, it will have a devastating effect on property values, but instead of this being this year as I previously believed it is more likely to be in 2/3 years time.
Please don't tell them over on the "how far will house prices fall" thread!hora said:
PH'er boffins are far more qualified than bank ones....
So, on a Tracker mortgage using your expertise (cough crystal ball), what +% fluctuations over the base/current level do you think there will be?
(Figuring whether to chance a tracker for 2yrs but worried about the coalition/economy etc)...
Why a 2 year tracker rather than a lifetime tracker?So, on a Tracker mortgage using your expertise (cough crystal ball), what +% fluctuations over the base/current level do you think there will be?
(Figuring whether to chance a tracker for 2yrs but worried about the coalition/economy etc)...
Edited by hora on Friday 18th June 19:20
anonymous said:
[redacted]
Assuming steady and stable factors this is precisely what the world is hoping for. My general thinking is that too much money will have been printed and that instead of winding rates up slowly and practically over a series of years we will have a period within the next few years when inflation is too powerful for spending cuts to mop up and rates will go through a period of large upwards spikes to get it under control. The side effect will be the retail property correction.I'm running with my view because I'm not aware of any economic event in history where the policy makes managed to get it 'just' right. There is always an over or under shooting followed by a short period of strong policy to correct things.
What I cannot manage to do is to extrapolate this to London (central, obvious key areas). So long as London retains its current status for investment on the global scene then it is hard to see there to be any likely downward pressure on prices of any great signicance. We live on a planet of 7bln people and growing. Vast new economies have made more multi millionaires in the last decade that in the rest of time combined. Any value weakness will almost certainly be soaked up internationally.
Outside of London the effect cannot be anywhere near as strong. The sphere of influence of international wealth is much less and while there is probably sufficent local wealth, it will not act the same way as by the very nature it is local and will be too closely involved in the declining asset to be objective etc. It's easy to buy an asset in one country when all your other assets in your home country are climbing etc.
Somewhatfoolish said:
I would always fix; way I see it is that interest rates have a floor, they don't really have a ceiling. The premium you pay on the fix is insurance - and pretty cheap insurance imo.
I would prefer to self insure - FD lifetime tracker of 1.79% over base is mighty temptingNoelWatson said:
Somewhatfoolish said:
I would always fix; way I see it is that interest rates have a floor, they don't really have a ceiling. The premium you pay on the fix is insurance - and pretty cheap insurance imo.
I would prefer to self insure - FD lifetime tracker of 1.79% over base is mighty temptingNoelWatson said:
I'm not sure why they need forecasting - don't they just hedge exposure using swap rates?
Answer, they dont, the rate is based on swaps, but the swaps in themselves include interest rate risk premium....!?So you still pay a premium for a fixed rate over a tracker. Gone are the days of discount trackers, but they were cool
Accelebrate said:
Does anyone know of any better deals than the FD 1.79% tracker? Unfortunately they don't state what their early repayment charges are on the website, just that there is a charge. Are FD pretty fair when it comes to valuation fees?
Don't think there are early repayment charges. Think valuation is around £100-£200Thanks.
Seems to suggest that there are early repayment charges on this page:
http://www1.firstdirect.com/1/2/mortgages/understa...
Can't find any specific details for variable rates though, I'll give them a call later.
Seems to suggest that there are early repayment charges on this page:
http://www1.firstdirect.com/1/2/mortgages/understa...
Can't find any specific details for variable rates though, I'll give them a call later.
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