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Swap Rates Still Rising

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Ah it's a lovely saturday, and I just got a pleasant surprise on www.swap-rates.com

Swap rates still rising, 1 year swap at 6.38%.

I'm off now to watch the tour de france prologue in central London and check out all the property that will soon be decimated.

:P

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So are these companies locking in a fixed interest rate from variable for a year or banks lending between themselves. I tried to read up on it but it seems to be quite an incestous affair.

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So are these companies locking in a fixed interest rate from variable for a year or banks lending between themselves. I tried to read up on it but it seems to be quite an incestous affair.

The swap is for a floating rate of interest against a fixed rate, no real principal is exchanged only the interest on an amount, (£5m the rate is based on I think :huh:)

The idea is that one party who needs to meet liabilities for a period doesn't want to take the chance of base rate fluctuations so they pay the other party a floating rate and receive a fixed rate which is now over 6%. This means that the market expects IR to rise. If the market thought this was the peak, the spread between base and swap would be tighter.

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I'm off now to watch the tour de france prologue in central London and check out all the property that will soon be decimated.

:P

me too (puts on cycling helmet) :lol:

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The swap is for a floating rate of interest against a fixed rate, no real principal is exchanged only the interest on an amount, (£5m the rate is based on I think :huh:)

The idea is that one party who needs to meet liabilities for a period doesn't want to take the chance of base rate fluctuations so they pay the other party a floating rate and receive a fixed rate which is now over 6%. This means that the market expects IR to rise. If the market thought this was the peak, the spread between base and swap would be tighter.

Thanks.

So this means they think and are paying real cash in interest to cover a future rise?, they must be very sure then, like you said that interest rates haven't peaked.

Edited by maxwell

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http://money.guardian.co.uk/houseprices/st...2120947,00.html

Lenders in stampede to withdraw fixed-rate mortgages

Miles Brignall

Saturday July 7, 2007

The Guardian

The cost of fixed rate mortgages looks set to rise sharply next week after banks and building societies started withdrawing products in response to Thursday's bank rate rise.

...

Melanie Bien, of broker Savills Private Finance, said "swap rates" suggest the market is expecting rates to go to at least 6%, if not higher.

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Check out the 12 month inter-bank rates for the UK though. Why are they at 5.5% when shorter terms reflect the full 6.25% swap rate?

6.25% rate to be short lived?

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Is the swap rate always set slightly higher or lower than the predicted IR? Or have I got the wrong end of the stick here

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Is the swap rate always set slightly higher or lower than the predicted IR? Or have I got the wrong end of the stick here

I think it is higher. This is my analogy but anyone can correct me if it's not accurate:

Imagine you are borrowing money on a variable rate loan and get worried about where the rate is headed. You come to me and ask me if I'll pay the bank all the interest payments on your loan, in exchange for which you'll give me a flat rate payment every month.

I would insist that you paid me MORE than I expected to have to pay back to the bank, to compensate me for the risk that the bank payments might soar.

So the flat rate I am charging you (the swap rate) will be higher than I expect the average interest rate to be during the period of the loan.

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I think it is higher. This is my analogy but anyone can correct me if it's not accurate:

Imagine you are borrowing money on a variable rate loan and get worried about where the rate is headed. You come to me and ask me if I'll pay the bank all the interest payments on your loan, in exchange for which you'll give me a flat rate payment every month.

I would insist that you paid me MORE than I expected to have to pay back to the bank, to compensate me for the risk that the bank payments might soar.

So the flat rate I am charging you (the swap rate) will be higher than I expect the average interest rate to be during the period of the loan.

cheers - that seems to make sense.

so it depends on the spread or the margin (I think) as to where IRs are heading. they might not even touch 6% if the difference is, say, 0.5% - Is this right?

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

Edited by DoctorJ

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so it depends on the spread or the margin (I think) as to where IRs are heading. they might not even touch 6% if the difference is, say, 0.5% - Is this right?

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

Yes, but remember that the swap rate is not future interest rate + margin.

It is EXPECTED future interest rate + margin.

So to rephrase your question, a swap rate of 6.25% could represent a margin of 0.5% and a market EXPECTATION of 5.75% interest rate.

One of the clever economists on here could tell you what a typical margin is. I don't know. All I know is that the trend is bearish (rising).

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Since houseprices are still moving up I don't see quite how that's a cause for cheer!

In fact, with Browns built in tax breaks on landlord income, cheaper landlord debt, and massive immigration of millions supported by our taxes ;

I do not see any real hurt other than again to the underclass - paying out of thier paypacket's both for rent/mortgages of huge houseprices, and paying crushing taxes towards the rent of the millions of workers to undercut them in the workforce!

Brown has 3 massive electoral bases of support.

(1) The Rich who fund his tiny membership party as long as he does thier bidding; - no taxes, - mass immigration, they get massive breaks on property etc... [so they are happy]

(2) The propertied mass of workers who see rising taxes, decimated pensions, rising council taxes and no real growth in wages after years - But 1/4 million pound rises in houseprices which they think makes them wealthy [so they are happy]

(3) The Displaced workers who get free housing, food, fags booze and Trisha/Jeremy Kyle - Bread and Circuses as a salve to their listless existance. As John Cruddas M.P. put it - 'The new labour elite say the traditional working class electorate may not like this immense impact - but where are they going to go poltically - the BNP?? Its labour or nothing for them.'

(4) The unpropertied mass of workers caught between rising costs and taxes and a coming ID card system to fund all the above.

The UK's uncontrolled unfettered mass immigration is Roman, in scale.

(you can goto a slave auction near you if you know what you are looking for - http://news.bbc.co.uk/1/hi/uk/5046170.stm)

In Rome millions of slaves of displaced millions of roman workers - thier wages and work undercut, they got bread and circuses while they rotted on the dole, and woe betide the leaders who did not give them this in the polls.

Of course then slaves funded this. We now have a underclass who fund this situation with crushing taxes! (But who are happy as long as thier houseprices rise!)

Each worker on average wages pays over £1000 p.a in taxes, just to fund housing benefit to landlords?

Nearly the same as the £40 bln spent on sickness benefit for the 15% of displaced male workers caused by the biggest mass immigration in history.

Edited by brainclamp

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Since houseprices are still moving up I don't see quite how that's a cause for cheer!

In fact, with Browns built in tax breaks on landlord income, cheaper landlord debt, and massive immigration of millions supported by our taxes ;

I do not see any real hurt other than again to the underclass - paying out of thier paypacket's both for rent/mortgages of huge houseprices, and paying crushing taxes towards the rent of the millions of workers to undercut them in the workforce!

I haved worked out that each worker on average wages pays over £1000 p.a in taxes to fund housing benefit and support for this mess.

About the same as the £40 bln spent on sickness benefit for the 15% of displaced male workers caused by the biggest mass immigration in history.

Workers caught between rising real living costs, rising taxes and housing costs is only going to grow.

Based on what evidence? Evidence seems to suggest that we are at the top of this housing cycle. For example, IR's on the way upwards, oil prices up = higher inflation, sub prime worries from the United States of Slumpica crossing our way, credit tightening in the UK, bearish "doom-mongering" from our media seems to suggest that recent FTB's may only be able to take one more measley quarter per cent rise before they have to bail out................need I go on?

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Guest Popalot

When something is going against the way certain people (VI, greedy OOs, Trolls) want it to go, they catch hold of little mantras, like life rafts. If anyone with any intelligence actually challenged them they would flounder, but here are some of the empty little life-raft mantras of the HP bubble:

- Immigrants - rubbish, they rent flats at 10 per bedroom.. The Poles are wonderfully cynical, they have a game plan of back in 3 years with a load of builder's cash. Think African wokers going to other countries to make money and bringing it back home (along with AIDS)

- Supply/ demand - also rubbish, see above. Foreign banks sending their capitalist whippersnappers set them up for RENT. Foreign investors are wealthy, yes, but do not come in thousands at that level, and guess what they are FICKLE...watch the exodus

- It's different this time - yes the economic conditions are even worse than the late 80s or 2005

- London is the capital of the world....until people realise it is actually caught between being Londinistan and crock of sh**e. It is on a hair trigger, sadly, called the City, al Qaeda and Transport for London....

Oh joy..........my personal position now is I cannot make the effort I just did in typing this out with muppets who don't want to know what they cant understand..... (EAs, greedy OOs and BTL trolls)

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Lets examine this bearish trend of rising interest rates.

Rising rates and high inflation are both problems in New Zealand and Oz and have been for a long while.

What is the outcome of all the rate rises to 8%?

Even more unaffordable housing and rents!

Houseprices have not stopped moving upwards.

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Lets examine this bearish trend of rising interest rates.

Rising rates and high inflation are both problems in New Zealand and Oz and have been for a long while.

What is the outcome of all the rate rises to 8%?

Even more unaffordable housing and rents!

Houseprices have not stopped moving upwards.

Australian house prices have fallen in some areas, including in Sydney in the last quarter, and rises have fallen to close to inflationary levels (i.e. no real growth).

This is despite the fact that there is considerable investment from Japanese investors in both the Australian and New Zealand markets. It would certainly be more drastic without the Japanese influence.

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Check out the 12 month inter-bank rates for the UK though. Why are they at 5.5% when shorter terms reflect the full 6.25% swap rate?

6.25% rate to be short lived?

I was going to reply to your post on Saturday, but I thought I'd wait till Monday for obvious reasons. You know the old saying, a picture says a thousand words. ;)

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

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Yes, but remember that the swap rate is not future interest rate + margin.

It is EXPECTED future interest rate + margin.

So to rephrase your question, a swap rate of 6.25% could represent a margin of 0.5% and a market EXPECTATION of 5.75% interest rate.

One of the clever economists on here could tell you what a typical margin is. I don't know. All I know is that the trend is bearish (rising).

Apparently it is historically .15

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