DavidGold Posted April 13, 2006 Share Posted April 13, 2006 Mortgage rates have only just gone up (Nationwide today, for example), yet long term yields are still rising... UK http://www.bloomberg.com/markets/rates/uk.html US http://www.bloomberg.com/markets/rates/index.html Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 Well spotted the UK tightening cycle has begun about a year after the US. Nobody has any idea yet where this will end. This is the start of HPC. Quote Link to comment Share on other sites More sharing options...
libitina Posted April 13, 2006 Share Posted April 13, 2006 Mortgage rates have only just gone up (Nationwide today, for example), yet long term yields are still rising... UK http://www.bloomberg.com/markets/rates/uk.html US http://www.bloomberg.com/markets/rates/index.html Can someone explain this to me please? Simple is best Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 The inverted yield curve is reversing due to the very low interest rates that have been applied all around the world. Once it starts reversing it will pick up pace and then +4% rises in interest rates will not be out of the question. With Japan tightening and commodities in huge demand, this could be quite a dramatic event. Soon it's going to be time to dump equities and head back to bonds. Global liquidity is drying up. Quote Link to comment Share on other sites More sharing options...
cupidstunt Posted April 13, 2006 Share Posted April 13, 2006 Surely karhu one of the best pointers to a crash is the "head and shoulders" on the House price graph? Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 Surely karhu one of the best pointers to a crash is the "head and shoulders" on the House price graph? You go with technical analysis, I'll go with fundamentals. We've come to the same conclusion. When both camps agree, it's game over Quote Link to comment Share on other sites More sharing options...
Surrey cash buyer Posted April 13, 2006 Share Posted April 13, 2006 Is there any great significance to the fact that bond yield has just risen above bank base rate? Quote Link to comment Share on other sites More sharing options...
shermanator Posted April 13, 2006 Share Posted April 13, 2006 The inverted yield curve is reversing due to the very low interest rates that have been applied all around the world. Once it starts reversing it will pick up pace and then +4% rises in interest rates will not be out of the question. With Japan tightening and commodities in huge demand, this could be quite a dramatic event. Soon it's going to be time to dump equities and head back to bonds. Global liquidity is drying up. Your last bit about global liquidity drying up eclipses everything, IMHO. I posted a chart on it about 6 weeks ago. When liquidity dries up, either equity markets and/or the housing market tanks - period. Unless of course, it's different this time............ Quote Link to comment Share on other sites More sharing options...
spline Posted April 13, 2006 Share Posted April 13, 2006 Repo rate expectations from the BBA, today and a month ago: 13-Mar 12-AprO/N 4.74500 4.400001M 4.44667 4.440003M 4.43667 4.453336M 4.47000 4.500009M 4.52667 4.555001Y 4.56667 4.60500 BBA – Daily Repo Rates http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=228&a=1451 Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 (edited) Is there any great significance to the fact that bond yield has just risen above bank base rate? OMG!!! Yes! That's reversal of the so called "inverted yield". Long term rates being higher than short term is the norm and points to growth (BTW: Long term rates being lower than short term points to recession.) - as that exacerbates short term interest rates go up, fixed rate mortgages become a lot more expensive and variable rate mortgages become a lot more risks (for banks and borrower). As they say, just when you thought it was safe to have a spring bounce, this news hits you. Edited April 13, 2006 by karhu Quote Link to comment Share on other sites More sharing options...
sam Posted April 13, 2006 Share Posted April 13, 2006 Well spotted the UK tightening cycle has begun about a year after the US. Nobody has any idea yet where this will end. This is the start of HPC. AGAIN Hope you are right THIS TIME Sam (O; Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 (edited) AGAIN Hope you are right THIS TIME Sam (O; Sam, I came to the conclusion that HPI would continue so long as banks were willing to throw caution to the wind and long term interest rates stayed low. I think both risk and long term rates have increased significantly over the last month. FTBers were between a rock and a hard place last year, now it's the banks. Anyone want to do some nice graphs of RBS, HBOS over the next few weeks. They're about to follow the builders down. I'm almost exclusively in commodity equities and soon to be out of everything by the looks of this tidal wave. Edited April 13, 2006 by karhu Quote Link to comment Share on other sites More sharing options...
DavidGold Posted April 13, 2006 Author Share Posted April 13, 2006 Can someone explain this to me please? Simple is best Mortgage companies don't just base their mortgage rates on the Bank of England base rate (the rate of borrowing for overnight), but use longer term money market rates too. Hence mortgage rates can change even though the Bank of England base rate has stayed the same since last August. (It will depend on the type of mortgage - fixed rate mortgages may be more affected.) The Nationwide in their press release yesterday specifically cited swap rates: "Over recent weeks, the money market swap rates have increased and many lenders have increased their rates accordingly" http://www.nationwide.co.uk/mediacentre/Pr...this.asp?ID=821 The original links show today's & yesterday's yields (i.e. interest rates) for different time periods, akin to 5 year & 10 year fixed rate mortgages, for example. This link gives more history under the Swap Rates heading at the top: http://www.clpuk.com It too shows rising rates, though I don't think the actual rates (4%, 5% etc.) are directly comparable with Bloomberg's. Note it doesn't show today's rises. Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 Dr. B. I've been watching this too, but felt that this week an interesting "tipping point" has been reached. I noticed the FTSE 100 dropped below 6000 again. Quote Link to comment Share on other sites More sharing options...
libitina Posted April 13, 2006 Share Posted April 13, 2006 Mortgage companies don't just base their mortgage rates on the Bank of England base rate (the rate of borrowing for overnight), but use longer term money market rates too. Hence mortgage rates can change even though the Bank of England base rate has stayed the same since last August. (It will depend on the type of mortgage - fixed rate mortgages may be more affected.) The Nationwide in their press release yesterday specifically cited swap rates: "Over recent weeks, the money market swap rates have increased and many lenders have increased their rates accordingly" http://www.nationwide.co.uk/mediacentre/Pr...this.asp?ID=821 The original links show today's & yesterday's yields (i.e. interest rates) for different time periods, akin to 5 year & 10 year fixed rate mortgages, for example. This link gives more history under the Swap Rates heading at the top: http://www.clpuk.com It too shows rising rates, though I don't think the actual rates (4%, 5% etc.) are directly comparable with Bloomberg's. Note it doesn't show today's rises. Thank you Quote Link to comment Share on other sites More sharing options...
befuddled Posted April 13, 2006 Share Posted April 13, 2006 The inverted yield curve is reversing due to the very low interest rates that have been applied all around the world. Once it starts reversing it will pick up pace and then +4% rises in interest rates will not be out of the question. With Japan tightening and commodities in huge demand, this could be quite a dramatic event. Soon it's going to be time to dump equities and head back to bonds. Global liquidity is drying up. Isn't the UK gilt curve inverting still further today?? There is such a strong bid for the long end at the moment and the bonds funds have another forced duration extension from an index rebalance coming up soon as well. Quote Link to comment Share on other sites More sharing options...
karhu Posted April 13, 2006 Share Posted April 13, 2006 Isn't the UK gilt curve inverting still further today?? There is such a strong bid for the long end at the moment and the bonds funds have another forced duration extension from an index rebalance coming up soon as well. A bit of positive feedback never hurt anyone Quote Link to comment Share on other sites More sharing options...
DavidGold Posted April 13, 2006 Author Share Posted April 13, 2006 WHERE have you been? What your graph doesn't show is that Nationwide's fixed rate mortgage rates are lower now than they were in May last year (4.78% versus 5.59% then for 5 year fix for example), but not for much longer at this rate... Quote Link to comment Share on other sites More sharing options...
BearishBull Posted April 13, 2006 Share Posted April 13, 2006 In the case of UK Gilts, yield inversion has been exacerbated by pension reforms which forced pension funds to switch out of equities and into long-dated gilts - to some extent, long dated gilt yields have been artificially depressed by govt regulation (just when equities started performing, Gordon starting forcing pension funds to increase holdings of LD Gilts - nice trade!)...however, under the pressure of global monetary tightening, even with this technical support, the market is heading south at an alarming rate of knots - 10yr Gilts have risen by 40bps to 4.5% in less than 6 weeks, while 10yr £ swaps (effectively the rate at which banks borrow in money market) have risen by the same amount to reach 4.85% (as I've explained before, this is why 10yr fixed rate mortgages have been getting more expensive) Quote Link to comment Share on other sites More sharing options...
Surrey cash buyer Posted April 13, 2006 Share Posted April 13, 2006 So are we saying that it is very possible that mortgage rates, fixed and variable, could rise to above 5% even without the bank of england increasing base rates? Quote Link to comment Share on other sites More sharing options...
y0ssarian Posted April 13, 2006 Share Posted April 13, 2006 "Mortgage companies don't just base their mortgage rates on the Bank of England base rate (the rate of borrowing for overnight), but use longer term money market rates too. Hence mortgage rates can change even though the Bank of England base rate has stayed the same since last August. " This is why it irrtates me when people say that government wont allow house prices to fall, they wont raise rates because they cannot afford it politicaly etc ect. Rubbish Its the market that decides at what rate its wants to borrow or lend. That the government some how has absolue control over lending rates is a widely held myth which has greatly added to the bubble. Quote Link to comment Share on other sites More sharing options...
BearishBull Posted April 13, 2006 Share Posted April 13, 2006 "Mortgage companies don't just base their mortgage rates on the Bank of England base rate (the rate of borrowing for overnight), but use longer term money market rates too. Hence mortgage rates can change even though the Bank of England base rate has stayed the same since last August. " This is why it irrtates me when people say that government wont allow house prices to fall, they wont raise rates because they cannot afford it politicaly etc ect. Rubbish Its the market that decides at what rate its wants to borrow or lend. That the government some how has absolue control over lending rates is a widely held myth which has greatly added to the bubble. I know what you're saying but a couple of points: 1) In theory, its the MPC not the govt that sets base rates (although true that the level of political interference is a point for debate); 2) the Treasury CAN influence longer term rates thru open market operations (either buying back Gilts to reduce longer term interest rates or vice versa). However, if the Treasury buys back, it increases the amount of Sterling in circulation and devalues the currency (one consequence of which is import price inflation). So, in summary, central bankers can control either interest rates or fx rates at any one time, but not both and that's why its important to pay attention to fx markets...look at what happened to the UK's involvement in the ERM as an example of this Quote Link to comment Share on other sites More sharing options...
Prude Posted April 13, 2006 Share Posted April 13, 2006 I've read on here and other threads that in the case of the US 10yr bond where it leads the FED has to follow (usually about 6 weeks later) - this is certainly the case at the moment as the US rates will yet again attempt to play catch up at the next FED meeting. So does the same apply to UK Gilts? Ie. am I right in being excited that gilt yields have today gone beyond (if only slightly) the base rate? Does this mean if this continues that the BOE will have no choice but to follow as the FED does? I hope the answer is a big YES! Quote Link to comment Share on other sites More sharing options...
DavidGold Posted April 13, 2006 Author Share Posted April 13, 2006 So are we saying that it is very possible that mortgage rates, fixed and variable, could rise to above 5% even without the bank of england increasing base rates? Fixed rates definitely (5 year Nationwide fix now 4.78%) Tracker rates no (these religiously shadow Bank of England base rates) Variable rate mortgages don't know: not something I follow (with a large debt, rising rates would escalate monthly payments rapidly) Last summer there was speculation of several base rate cuts and mortgage rates must have come down (I haven't followed them religiously since May). There was one cut by the narrowest of voting margins 5-4 in August, but the other cuts expected in November and February have failed to materialise. Now the expectation is base rates will not fall and may rise, and mortgage rates are begining to rise to reflect that change in expectations. Quote Link to comment Share on other sites More sharing options...
teddyboy Posted April 13, 2006 Share Posted April 13, 2006 Is this a long trend that will contine or a blip? This HPC thing is like a roller-coaster so are we saying that JOE PUBLIC will see interest rates on Mortgages go up and the market will be bearish. Credit tightened so even though you want to pay £200K for that £130K house - you now cant? One a scale of 1-10 what are the chance of this credit screw continuing to tighten and affecting the current bull-run? I RESPECT THESE ARE OPINIONS. The only curves I know are on a woman and the only gilt I know of is when I stay in the pub!!! TB Quote Link to comment Share on other sites More sharing options...
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