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For those who like a graph and a bit of colour, this should cheer you up.

Swap-rates.com

impressive stuff- technologically speaking- not quite sure about the econonomics of it :lol:

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My money's on this changing once the MPC has hiked rates by a further 0.25%. The market will assume a peak and 2 year swap rates will fall.

You would lose that money. Nothing short of a HPC is going to stop those rates rising.

The US would be raising now if it wasn't for their housing market and plummeting growth levels.

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impressive stuff- technologically speaking- not quite sure about the econonomics of it :lol:

It is a very nice creation. I'll just give you a quick intro into the yield curve so you can tell how nice it is!!

Firstly, what is a yield curve? Well, a yield curve tells us what price you will have to pay for a loan at different maturities. So you can tell how much interest rates would cost over one year and you can also see what you would have to pay if you borrowed money for 30 years. And for all the years in between.

What is new about this chart is that you can also see how the yield curve itself has changed over time (in this case from one year ago). So you can compare, for instance how much it would have cost to borrow money for 10 years a year ago compared to today.

Why is this interesting? Well, leaving aside the fact that these charts tell you how much money is out there to borrow at different maturities, it also tells you what to expect in the future.

You see, if interest rates go up in the short term (for instance if one-year rates are 5% and two-year rates are 7%) it tells us that the market expects base rates to be somewhere in the region of 7% two years from now.

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Also note that UK swap spreads are at historical lows. In the event of a HPC or a reassessment of risk (as is happening in the states right now) these swap rates will widen even further. As investors now increasingly use the swap curve for pricing, these rates signal the end of the credit cycle IMHO.

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correct me if I'm wrong, but doesn't that show an inverted yield curve..? :huh:

Indeed... It is felt by some that an inverted yield curve presages a recession. However, there seem to be various "reasons" why it is different this time according to the head up own a$$ camp.

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Indeed... It is felt by some that an inverted yield curve presages a recession. However, there seem to be various "reasons" why it is different this time according to the head up own a$$ camp.

Looking at the level of inversion, it appears that the UK is in a much more precarious position compared to the USA or Europe.. :o

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You would lose that money. Nothing short of a HPC is going to stop those rates rising.

The US would be raising now if it wasn't for their housing market and plummeting growth levels.

I don't think you can determine whether I'll lose, any more than I can determine wheter your opinion is correct! We each place our bets and see how the cards fall.

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Looking at the level of inversion, it appears that the UK is in a much more precarious position compared to the USA or Europe.. :o

Yes, when I found that site I noticed the inversion, and also the lack of inversion on the US curve.

It looks like the focus is all on the wrong country! The US had its boom but it was nothing compared to ours. Now their yield curve is back to a normal shape and ours looks mega-inverted.

I think we may be in for a serious economic shock shortly.

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Looking at the level of inversion, it appears that the UK is in a much more precarious position compared to the USA or Europe.. :o

Yepp. HPC will be much worse here than in the US. Therefore consumption will falter much more. Therefore a deeper recession.

Any additional problem from the US financial market will only feed through to the UK anyway (on top of the homemade misery).

Edited by Goldfinger

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I don't think you can determine whether I'll lose, any more than I can determine wheter your opinion is correct! We each place our bets and see how the cards fall.

:)

Indeed we shall ;)

And, yes, we are both guessing.

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So how accurate has this forecasting been in the past? Only I'm thinking that when inflation takes hold we're looking at more like 7-8% in 2 years time!!!

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You see, if interest rates go up in the short term (for instance if one-year rates are 5% and two-year rates are 7%) it tells us that the market expects base rates to be somewhere in the region of 7% two years from now.

Where do you see that (7%)?

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Where do you see that (7%)?

I don't. For the UK extended Swap Rates I see 1-year rates at 6.19% and 2-year rates at 6.16%. I was just giving an example - don't get your hopes up for 7%!! ;-)

Don't forget there is generally a spread to Base rates of around 0.15 to 0.20% so that means rates are expected to be a bit lower than the 6.16% two years from now.

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I don't. For the UK extended Swap Rates I see 1-year rates at 6.19% and 2-year rates at 6.16%. I was just giving an example - don't get your hopes up for 7%!! ;-)

Don't forget there is generally a spread to Base rates of around 0.15 to 0.20% so that means rates are expected to be a bit lower than the 6.16% two years from now.

One thing I have noted this year is that as the BoE raises the base rate by 0.25% it seems that the market (swap Rates?) rise 0.25% as well maintaining the gap between where we currently are and market future expectations. It is a moving target.

It is almost as if the market is hoping that the next BoE hike will be the last. Then when we get the hike and nothing really changes everyone realises that there will be another one in the future because inflation is being so stubborn. I think the markets are serially underestimating where this long term interest rate cycle could end.

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UK Current swap rates have risen quite a bit in the last week.

http://www.swap-rates.com/UKSwap.html

And that is an impressive inverted yield curve!

And another thing, there were a view points made in the week regarding the ending of 2 year fixed rate mortgages. The numbers were 820 000 between the end of August and December (if I remember rightly). The point is that all the calculations of the increases in fixed rates were based on the current interest rates. Well as we can see current rates are rising, so anyone who is a bit late getting their new deal sorted is likely to have an even harder time than the papers were saying last week. It is still 6ish weeks to August.

Edited by FTBagain

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