Jump to content
House Price Crash Forum
Sign in to follow this  
KingBingo

Interest Rates... Lets Think About This

Recommended Posts

So the US has been downgraded, what's next for interest rates in the UK, which of course could be a major driver for house prices.

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates. If this happens the UK will have to increase rates in order attract the bond market to their next gilt offer.

On the other hand, with the US downgraded maybe the UK looks better by comparison, as a result extra inflows will mean the UK can get away with low rates even longer.

What are people thinking?

Share this post


Link to post
Share on other sites

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates. If this happens the UK will have to increase rates in order attract the bond market to their next gilt offer.

Nah, we can simply print money and buy our own bonds with that ;)

On the other hand, with the US downgraded maybe the UK looks better by comparison, as a result extra inflows will mean the UK can get away with low rates even longer.

Our austerity BS seems to have bought us some time, at least on the bond yield front. I personally look at the currency and judge based on that. The Eurozone is burning down and we are struggling to get above 1.15, the US is binge spending and we are struggling to get above 1.65. Personally I think the UK is a sitting duck but while ever they can get away with low rates they will.

Be interesting to see if people rush towards the Dollar again like they did in 2008, hopefully not...

Share this post


Link to post
Share on other sites

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates. If this happens the UK will have to increase rates in order attract the bond market to their next gilt offer.

This logic doesn't apply anymore since central banks are now buying the bonds/gilts that the market doesn't want.

Therefore interest rates can stay low as long as the governments wants.

Share this post


Link to post
Share on other sites

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates.

Max Keiser was saying that the likes of JP Morgan and Goldman Sachs stand to make more money out of the US as its debt is downgraded.

Share this post


Link to post
Share on other sites

This logic doesn't apply anymore since central banks are now buying the bonds/gilts that the market doesn't want.

Therefore interest rates can stay low as long as the governments wants.

The central banks aren't buying bonds/gilts. Only when the start a new phase of quantitative easing are they doing that. Currently the BOE is keeping their holding of bonds at £200 billion (or about £3,000 per capita). There has been no announcement of an increase. If there is one it could result in the UK's triple A star rating being reduced as is is seen as an indirect way of monetizing debt.

Share this post


Link to post
Share on other sites

So the US has been downgraded, what's next for interest rates in the UK, which of course could be a major driver for house prices.

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates. If this happens the UK will have to increase rates in order attract the bond market to their next gilt offer.

On the other hand, with the US downgraded maybe the UK looks better by comparison, as a result extra inflows will mean the UK can get away with low rates even longer.

What are people thinking?

With merv and his merry men in charge the rates will stay as they are what ever happens.

Share this post


Link to post
Share on other sites

It is inflation in a deflationary environment... if that makes any sense...

Interest rates on savings will remain at next to nothing... IRs on loans will soar... so inflation will erode any cash savings you have... They are going to force people into assets such as shares, houses and PMs. Most will opt for PMs I guess.

Share this post


Link to post
Share on other sites

Would you explain why?

Just look at every other monetary policy that's been used and followed. The UK's position is very close to the US's position.

Share this post


Link to post
Share on other sites

Just look at every other monetary policy that's been used and followed. The UK's position is very close to the US's position.

I'd like to think this was true but I doubt it.

Share this post


Link to post
Share on other sites

The US being downgraded will only lead to higher rates there if all the money that was being lent to the US prior to the downgrade is successfully lent to another borrower.

People have a blind spot about rates - they think that interest rates are determined by what investors will accept, which is wrong. Rates are determined by what borrowers in aggregate will pay. An investor who refuses to lend his money because he can't find a risk/return trade off he likes, gets a rate of zero.

So to posit rising yields in the US and then elsewhere too, you'd need to identify places which would sink a high enough volume of funds. Those places must be capable not only of being able to borrow such large amounts, but critically they **must want to do so**.

So, if you want to make a case for rising rates you need to generate a credible answer to this question.

Share this post


Link to post
Share on other sites

It is inflation in a deflationary environment... if that makes any sense...

Interest rates on savings will remain at next to nothing... IRs on loans will soar... so inflation will erode any cash savings you have... They are going to force people into assets such as shares, houses and PMs. Most will opt for PMs I guess.

not sure I quite agree, people will only move to assets from cash if the asset will beat inflation. In reality you dont need to hedge against inflation if the asset you want to buy isnt being inflated (housing and now shares, although this only applies to capital increase and not the dividend yield). PM is the only one that is actually acting as an inflation hedge at the moment (I dont hold any PM's)

Edited by FIGGY

Share this post


Link to post
Share on other sites

I think the effects on these smaller places will likely be greater than for Treasuries due to the quarts into pint pots theory (that was noted when some people fled bonds and flew into commodities during the 2007/2008 crisis).

So the impact on the Swissie, UK, Australia, perhaps even gold and some risk assets etc could be quite significant.

I can't decode from that your prediction for interest rates...

Share this post


Link to post
Share on other sites

This logic doesn't apply anymore since central banks are now buying the bonds/gilts that the market doesn't want.

Therefore interest rates can stay low as long as the governments wants.

They can control the interest rate, but then they give up control of the value of the currency. Tis a bit like Heisenberg's uncertainty principle. Things could get a bit pricey.

Share this post


Link to post
Share on other sites

My prediction is, they will go higher.

When and on what short term drivers?

I suppose it will be easier to figure out on Monday when we see how the market reacts.

Share this post


Link to post
Share on other sites

I am thinking the markets may start to shy away from western sovereigns in favour of creditor nations and corporates. If this happens the UK will have to increase rates in order attract the bond market to their next gilt offer.

The creditor nations, by definition, aren't issuing much debt, so I don't think that argument works. My guess is that UK debt will be seen as a least bad option but only of the deficit starts to come down materially.

Share this post


Link to post
Share on other sites

Would you explain why?

Commodities are priced in USD. If the Fed raises and we stick, we get less $ for our £ and inflation is amplified further.

Share this post


Link to post
Share on other sites

This logic doesn't apply anymore since central banks are now buying the bonds/gilts that the market doesn't want.

I'm curious what the downside of this is. I don't remember hearing the term QE before 2007 but it seems too simple to have been a recent invention. There must be a well known downside, like the widely known print money = inflation?

Bit of a noob question maybe but I just get the feeling its all "extend and pretend" and eventually the resources used to extend will run out (like paying a credit card with another credit card). I'm just wondering what the equivalent is when the central bank continually props up the country's bond auctions.

Share this post


Link to post
Share on other sites

Laugh you can, but I didn't say when. I will be right eventually.

you didn't say how high they'do go and whether you are talking real or nominal so really you didn't say anything.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.