Interest Rates Are Going To Rise

[ticket2ride]

Bank of England v the City: who's right on interest rates?

Carney's first big policy intervention may go down as a masterstroke if he eventually convinces markets that interest rates really are on hold for the duration.

Since the implicit commitment was made explicit on 7 August, both the bond market and the foreign exchange market have brought forward the date when they think the Bank's monetary policy committee will push up the official interest rate from its record low of 0.5%.Why? Because the City has taken a quick squint at the property market, where the interest-only mortgages that were a feature of the previous boom are making a comeback, and come to the conclusion that the UK is in the early stages of a credit bubble.

[XswampyX]

What's the point of forward guidance if they aren't going to change anything? - No point.

What's the point of forward guidance if they are going to drop rates? - erm they can't.

What's the point of forward guidance if they are going to raise rates? -

[Butthead]

The only point of forward guidance is to maintain the pretense that they are in control.

[thecrashingisles]

[chronyx]

I will believe it when I see ISA interest rates that go from 'derisory' to 'marginal'

[ticket2ride]

What's the point of forward guidance if they aren't going to change anything? - No point.

What's the point of forward guidance if they are going to drop rates? - erm they can't.

What's the point of forward guidance if they are going to raise rates? -

Nicley stated. :-)

[zugzwang]

He's completely irrelevant. The market determines the cost of money not some Soviet-Harvard mandarin.

[spyguy]

Because the City has taken a quick squint at the property market, where the interest-only mortgages that were a feature of the previous boom are making a comeback, and come to the conclusion that the UK is in the early stages of a credit bubble.

Christ that's nonsensical.

The BoE does not want to raise the base rate - but they may.

Bank's don't borrow at the BoE base. They have to raise money, typically at some spread over the UK GOV 10Y GILT.

GILT yields are shooting up - as much as bond yields ever shoot.

Bnaks definetely don't sell mortgages at BoE rate.

Here's an FTAV post:

http://ftalphaville.ft.com/2013/08/19/1606563/that-spike-in-us-treasury-yields/

What goes for 10Y US goes even more for 10Y GILTS - The US $ is a major reserve currency; the UK pound is not.

In the main, no one will buy GILTS that yield less than than 10Y US - too much currency risk.

A banks SVR will be the rate at which it can sell debt (currently ~4%) + operating cost (1% - 2%) + profit (0.5% - 1%).

[Harry Monk]

It's got absolutely nothing whatsoever to do with Mark Carney or the Bank of England when UK interest rates move upwards, it entirely depends on what the Federal Reserve do in the US and all indications are that they will raise rates before the end of this financial year.

You've heard of the expression "When America sneezes, Britain catches a cold"? Well, this time it will be "When America sneezes, Britain will be blasted with wet sticky green snot"

[chronyx]

It's got absolutely nothing whatsoever to do with Mark Carney or the Bank of England when UK interest rates move upwards, it entirely depends on what the Federal Reserve do in the US and all indications are that they will raise rates before the end of this financial year.

You've heard of the expression "When America sneezes, Britain catches a cold"? Well, this time it will be "When America sneezes, Britain will be blasted with wet sticky green snot"

By how much would they need to raise in order to make it an issue over here?

[Maynardgravy]

It's got absolutely nothing whatsoever to do with Mark Carney or the Bank of England when UK interest rates move upwards, it entirely depends on what the Federal Reserve do in the US and all indications are that they will raise rates before the end of this financial year.

You've heard of the expression "When America sneezes, Britain catches a cold"? Well, this time it will be "When America sneezes, Britain will be blasted with wet sticky green snot"

Game changer if this happens. Dave will have to call an election ASAP.

'Once I rigged a housing market now it's done, it's a race against time.....' you know the rest.

[SleepyHead]

I do get the feeling the market wants to test Mr Carney.

[XswampyX]

Game changer if this happens. Dave will have to call an election ASAP.

'Once I rigged a housing market now it's done, it's a race against time.....' you know the rest.

Oooops!

In the United Kingdom, the Fixed-term Parliaments Act 2011 set elections for Parliament on the first Thursday in May every five years. Elections to the devolved parliaments are held on the first Thursday in May every four years. Like Canada, Germany, and Australia, provision is made for non-confidence votes. Though however in the United Kingdom, a committee must consider the Act in 2020 and whether or not it should be repealed.

[Harry Monk]

By how much would they need to raise in order to make it an issue over here?

Half a percent would make us follow suit within a month or two, just as we hung onto the US's shirt-tails as they initiated ZIRP four or so years ago and brought rates downwards. Whatever the US does, we will follow, we really have no choice as nobody will buy UK gilts if US gilts are giving twice as much in return. The first, smallest US interest rate rise will totally spook the market and lead to a stampede for the exits.

Edited August 19, 2013 by Harry Monk

[Jack's Creation]

Half a percent would make us follow suit within a month or two, but as we hung onto the US's shirt-tails as they initiated ZIRP four or so years ago and brought rates downwards. Whatever the US does, we will follow, we really have no choice as nobody will buy UK gilts if US gilts are giving twice as much in return. The first, smallest US interest rate rise will totally spook the market and lead to a stampede for the exits.

It should also lead to strengthening of the USD as people swap out of other currencies to take advantage of the rise in rates, with all the associated side effects.

It's going to get choppy.

[SNACR]

Something weird has been going on in the, sort of real economy, I've noticed it as I travel round the country. Been in the Coventry/Bedworth/Nuneaton/Hinckley areas today for the first time in probably about a year perhaps a bit more. All of a sudden garages, pubs and car dealer premises that were boarded up, getting close to dereliction, have either sprung or are springing back into life - often with lavish refurbs.

I can only assume the bank credit/lending taps have been turned on but, I can't see how it will last as if there wasn't business for the pub before I don't see how there is now. These are areas that are in a cycle of, pretty much, continual shedding of jobs from manufacturing industries.

[Sancho Panza]

Bank's don't borrow at the BoE base.

Wikipedia

'United Kingdom

In the UK bank rates are set by the Bank of England's Monetary Policy Committee. The key interest rate is called the official bank rate[2] which is the lowest rate at which the Bank acts as lender of last resort to the money markets.'

[chronyx]

Something weird has been going on in the, sort of real economy, I've noticed it as I travel round the country. Been in the Coventry/Bedworth/Nuneaton/Hinckley areas today for the first time in probably about a year perhaps a bit more. All of a sudden garages, pubs and car dealer premises that were boarded up, getting close to dereliction, have either sprung or are springing back into life - often with lavish refurbs.

I can only assume the bank credit/lending taps have been turned on but, I can't see how it will last as if there wasn't business for the pub before I don't see how there is now. These are areas that are in a cycle of, pretty much, continual shedding of jobs from manufacturing industries.

Trying to lure people in for one last hurrah?

Day to day costs haven't changed... I think I see more vehicles traveling slower these days

[chronyx]

Half a percent would make us follow suit within a month or two, just as we hung onto the US's shirt-tails as they initiated ZIRP four or so years ago and brought rates downwards. Whatever the US does, we will follow, we really have no choice as nobody will buy UK gilts if US gilts are giving twice as much in return. The first, smallest US interest rate rise will totally spook the market and lead to a stampede for the exits.

Cheers Harry - so how much do you think we'd have to put rates up by to make a difference?

I ask as I'm all for them going up, but if it's only by another (Example) 0.5% and that crashes the economy...I wouldn't notice the difference in interest on my savings so it hardly seems worth it. Can't believe I said that. Although the reset would still have to happen at some point

[XswampyX]

Something weird has been going on in the, sort of real economy, I've noticed it as I travel round the country. Been in the Coventry/Bedworth/Nuneaton/Hinckley areas today for the first time in probably about a year perhaps a bit more. All of a sudden garages, pubs and car dealer premises that were boarded up, getting close to dereliction, have either sprung or are springing back into life - often with lavish refurbs.

I can only assume the bank credit/lending taps have been turned on but, I can't see how it will last as if there wasn't business for the pub before I don't see how there is now. These are areas that are in a cycle of, pretty much, continual shedding of jobs from manufacturing industries.

I don't get it?

[The Masked Tulip]

Does it matter if IRs rise if interest only mortgages return - the banksters and MPs don't give a toss about people over-extending themselves and getting into troubled 5 or 10 years down the line. They just want debt and a housing boom.

IRs were high during the boom but it was interest only liar loans that caused HPs to soar.

[Butthead]

There's certainly the potential for treasury/gilt yields to rise quickly and in an uncontrolled manner, and for that to have side effects.

Anyone thinking that interest rates are going to rise because central banks/bankers are going to decide to raise them is deluding themselves though.

[Harry Monk]

Something weird has been going on in the, sort of real economy, I've noticed it as I travel round the country. Been in the Coventry/Bedworth/Nuneaton/Hinckley areas today for the first time in probably about a year perhaps a bit more. All of a sudden garages, pubs and car dealer premises that were boarded up, getting close to dereliction, have either sprung or are springing back into life - often with lavish refurbs.

I can only assume the bank credit/lending taps have been turned on but, I can't see how it will last as if there wasn't business for the pub before I don't see how there is now. These are areas that are in a cycle of, pretty much, continual shedding of jobs from manufacturing industries.

Yep, there was an Indian restaurant based in a closed-down Little Chef near to me, it changed hands and got a minor makeover every year or so for three or four years, then shut down entirely.

In the last few months it has had a huge makeover and is now a showroom for imported American semi-classic cars.

If you can't make it pay selling breakfasts every day, and you can't make it pay selling curry every day, how on earth can it pay selling a 1993 Pontiac or somesuch once a month?

[Venger]

He's completely irrelevant. The market determines the cost of money not some Soviet-Harvard mandarin.

Whatever the US does, we will follow, we really have no choice as nobody will buy UK gilts if US gilts are giving twice as much in return. The first, smallest US interest rate rise will totally spook the market and lead to a stampede for the exits.

A drawing from one of our own, (browneconomy, July 2012) if anyone missed it last time around. Carney might have taken over operations at the front, and my forward guidance is not a good time to be a big debtor or put too much belief into the value of property.

[The Masked Tulip]

What do you make of this? Anything in it or just the usual ZH doom and gloom? Surely Obama meets with this lot regularly?

Is Obama About To Crash The Gold Market Again?

http://www.zerohedge.com/news/2013-08-19/obama-about-crash-gold-market-again

Is the meeting because they are getting worried about the rising US gilt rates?