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stevie1969

5 Year Swap Rates Soaring - Fixed Rate Reprice Coming Soon

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rates are really motoring now

http://www.driversjonas.com/img.aspx?CID=1...=9875&log=1

waiting to see the scary level of the new batch of fixed rates coming to the market

Can you explain what these rates mean? what they are used for and how they apply to mortgages. Thanks, I'm a bit ignorant on this area of economics, which is ironic because I visited the LIBOR exchange market (or whatever it's called) when I was doing A level economics. But it was a lonnnnnnnng time ago.

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Can you explain what these rates mean? what they are used for and how they apply to mortgages. Thanks, I'm a bit ignorant on this area of economics, which is ironic because I visited the LIBOR exchange market (or whatever it's called) when I was doing A level economics. But it was a lonnnnnnnng time ago.

It's the rates counterparties are prepared to accept in order to fix rates :-

i.e. "I'll swap your floating rate for X number of years in return for Y fixed rate".

I'm sure you can appreciate the reasons for do so, a mortgagee may want to insulate themselves against potential future rises and the counterparty such as a pension fund may need a fixed income to match set liabilities and cannot bet on interest rates not being cut within the timeframe, thus potentially leaving them exposed to a shortfall.

Mortgage rate fixes are based on the swaps rate and interest rate expectations are priced in. Just look at the 5 year swaps rate, just 4.50% a few months back now it's 5.86%, nobody in their right mind would now enter into a <5% swap especially as a risk free 5 year gilt is yielding 5.44%. Additionally the banks will apply their spread to this rate.

Edited by BuyingBear

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It's the rates counterparties are prepared to accept in order to fix rates :-

i.e. "I'll swap your floating rate for X number of years in return for Y fixed rate".

I'm sure you can appreciate the reasons for do so, a mortgagee may want to insulate themselves against potential future rises and the counterparty such as a pension fund may need a fixed income to match set liabilities and cannot bet on interest rates not being cut within the timeframe, thus potentially leaving them exposed to a shortfall.

Mortgage rate fixes are based on the swaps rate and interest rate expectations are priced in. Just look at the 5 year swaps rate, just 4.50% a few months back now it's 5.86%, nobody in their right mind would now enter into a <5% swap especially as a risk free 5 year gilt is yielding 5.44%. Additionally the banks will apply their spread to this rate.

Thanks BB, very helpful.

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It's the rates counterparties are prepared to accept in order to fix rates :-

i.e. "I'll swap your floating rate for X number of years in return for Y fixed rate".

I'm sure you can appreciate the reasons for do so, a mortgagee may want to insulate themselves against potential future rises and the counterparty such as a pension fund may need a fixed income to match set liabilities and cannot bet on interest rates not being cut within the timeframe, thus potentially leaving them exposed to a shortfall.

Mortgage rate fixes are based on the swaps rate and interest rate expectations are priced in. Just look at the 5 year swaps rate, just 4.50% a few months back now it's 5.86%, nobody in their right mind would now enter into a <5% swap especially as a risk free 5 year gilt is yielding 5.44%. Additionally the banks will apply their spread to this rate.

So, in effect it costs the banks more to borrow the money that they want to lend to its customers?

Can you confirm?

(sorrry economics is not my strong point)

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So, in effect it costs the banks more to borrow the money that they want to lend to its customers?

Can you confirm?

(sorrry economics is not my strong point)

Yup, the money markets simply price the cost of money just like any other 'commodity'. Higher interest rate expectations result in higher swap prices.

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Yup, the money markets simply price the cost of money just like any other 'commodity'. Higher interest rate expectations result in higher swap prices.

Thanks,

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Breakout.

This is global and possibly unstoppable until the central banks take money supply and inflation seriously.

http://www.housepricecrash.co.uk/forum/ind...amp;qpid=660302

Yields across all maturities rose to or above 5 percent for the time since July and benchmark rates posted their biggest one-day spike in seven months.

The latest downturn was driven in part by a surprise interest rate hike in New Zealand overnight, and talk that Australia could follow suit.

While events in far-flung countries do not normally affect the benchmark U.S. bond market, the shift in global sentiment toward one of inflation concern was undeniable.

"The main mentality in the bond market is to phase out all those rate cuts that were once priced in. It's happening all around the world," said Robert Zukowski, technical analyst at 4Cast Ltd.

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Whoops, that's the end of the speculative property boom! :lol:

In case you missed it...

Beware The Bond Vigilantes!

Indeed, the BOE stopped voting years ago, now its the market's turn.

The Bank of England faces a Backlash

For the past three years, the ECB has operated under the same modus operandi as the Bank of England, inflating the money supply to buoy home and equity markets. But last week, the British gilt vigilantes, who have been locked in a tight box for the past eight years, came very close to breaking out. Two-year British gilt yields climbed to 5.78% on June 1st, a level not seen since in seven years. Ten-year gilt yields climbed to 5.32%, the highest since mid-2002.

For the past eight years, the UK’s 10-year Gilt yield has been locked in a tight range between 4.00% and 5.35%, benefiting from foreign capital inflows seeking to profit from an appreciating British pound. But how much longer can the long-term Gilt market ignore the monetary abuse of the BoE? On April 24th, a group of leading UK economists including former BoE member Charles Goodhart criticized the BoE for ignoring double-digit growth of the money supply since 2005.

A week later, BoE chief King admitted that, “the growth of money and credit may signal in advance of other indicators that the Bank rate is set at a level inconsistent with bringing inflation back to the target in the medium term,” he said. On May 10th, the BoE lifted its base lending rate by a quarter-point to a 6-year high of 5.50%, with consumer inflation raging at 3.1% it’s highest in more than a decade.

But UK house prices jumped 0.9% in April and 0.5% in May, even after three BoE rate hikes, and stand 10.3% higher from a year ago. The price of a typical UK house is 181,584 pounds, or about 17,000 pounds higher than at the same time last year. Not surprising, with the UK’s M4 money supply 13.3% higher from a year ago.

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Very very very soon the main mortgage lenders are going to decide that lending 4.25 times joint income is a big mistake. Can they go back to lending 2.5 times joint as they used to? Only if they want a 40% house price correction.

Oh what to do?

Maybe a gradual reduction keep your eyes peeled

http://www.housepricecrash.co.uk/forum/ind...mp;#entry658646

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Very very very soon the main mortgage lenders are going to decide that lending 4.25 times joint income is a big mistake. Can they go back to lending 2.5 times joint as they used to? Only if they want a 40% house price correction.

Oh what to do?

Maybe a gradual reduction keep your eyes peeled

http://www.housepricecrash.co.uk/forum/ind...mp;#entry658646

12 month/3 year rates over 6% - that's got to be significant psychological barrier for the high street market.

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Very very very soon the main mortgage lenders are going to decide that lending 4.25 times joint income is a big mistake. Can they go back to lending 2.5 times joint as they used to? Only if they want a 40% house price correction.

Oh what to do?

Maybe a gradual reduction keep your eyes peeled

http://www.housepricecrash.co.uk/forum/ind...mp;#entry658646

Bankers know things can't go on for ever, that's why we have a business cycle. It's far more profitable for banks to keep creating boom and bust than it is for markets to be constantly stable. If house prices hardly ever rose people would become complacent and wouldn't bother buying houses so often- however, send house prices into a boom and people panic and buy at any price. If prices fall that's OK because those that bought at a higher price still owe you the money.........reposess the house, the owners still owe you any money over and above the sale price and you get brand new people coming to you for a new loan.......double whammy, just like Christmas!

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W :lol: W

http://quotes.ino.com/exchanges/?c=interest

Interest Rates

10 YEAR T-NOTE (CBOT:TY) View all months | Download data | Analyze Chart

Market Open High Low Last Change Time

TY.M07 Jun 2007 105.546875 105.546875 105.125000 105.218750 -0.734375 13:44

TY.U07 Sep 2007 105.484375 105.500000 104.875000 105.109375 -0.750000 13:52

TY.Z07 Dec 2007 105.312500 105.312500 104.843750 104.843750 -0.921875 13:00

10 YEAR T-NOTE (CBOT:ZN) View all months | Download data | Analyze Chart

Market Open High Low Last Change Time

ZN.M07.E Jun 2007 (E) 105.984375 105.984375 105.000000 105.265625 -0.687500 13:52

ZN.U07.E Sep 2007 (E) 105.875000 105.921875 104.859375 105.140625 -0.718750 13:52

ZN.Z07.E Dec 2007 (E) 105.625000 105.625000 104.781250 104.781250 -0.984375 12:46

..................

T-BOND (CBOT:ZB) View all months | Download data | Analyze Chart

Market Open High Low Last Change Time

ZB.M07.E Jun 2007 (E) 108.40625 108.40625 106.68750 107.06250 -1.31250 13:52

ZB.U07.E Sep 2007 (E) 108.31250 108.34375 106.53125 106.93750 -1.34375 13:52

ZB.Z07.E Dec 2007 (E) 108.12500 108.12500 106.53125 106.81250 -1.50000 13:51

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Maybe a gradual reduction keep your eyes peeled

Ever seen a bubble gradually reduce?

I've seen a balloon deflate rather than pop if you leave it long enough.

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Domestic Rates

3 Month LIBOR 5.82%

6 Month LIBOR 5.97%

12 Month LIBOR 6.19%

3 Year SWAP 6.19% :(

5 Year SWAP 6.10% ;)

10 Year SWAP 5.82%

15 Year SWAP 5.61%

20 Year SWAP 5.45%

5 Year Gilt Yield 5.63%

10 Year Gilt Yield 5.39%

15 Year Gilt Yield 5.18%

6.25% By Xmas? :ph34r:

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