Jump to content
House Price Crash Forum
Sign in to follow this  
angrypirate

Swap Rates And Base Rates

Recommended Posts

no,no way.

commodities are falling,no chance of a hike imho

After the inflation in the system has worked through, they'll be dropping rates as fast as they dare. We couldn't possibly have below target inflation could we now. That would harm the debtors.

Share this post


Link to post
Share on other sites
As the interest rate is supposedly set for 18-24 months in advance the BoE haven't really done a very good job of predicting the future.

It's panic stations at the BoE.

however weirdly and historically the Boe base rate follows the libor rate, the market is very good at guessing what the BOE will do.... if the market is suggesting falls the BOE will follow, if the swap rate is lower than current Irs.

Edited by moosetea

Share this post


Link to post
Share on other sites
however weirdly and historically the Boe base rate follows the libor rate, the market is very good at guessing what the BOE will do.... if the market is suggesting falls the BOE will follow, if the swap rate is lower than current Irs.

Have you got any graphs/data to show that? I'd be interested to see them.

Share this post


Link to post
Share on other sites
Have you got any graphs/data to show that? I'd be interested to see them.

tada:

http://www.kshitij.com/fundamentals/funcharts/ukboe.shtml

as you can see when libor stops rising the BOE stops rising (apart from during the credit crunch which, where the base rate has been too low and inflation rose ;p). When libor drops below the base rate the BOE will be dropping rates. Mortgage rates follow the libor rate, so its a good indicator of how much you will pay when you remove all the fees, discounts and other stuff to muddy the water. 4.84% for a 25 year fix, if this carries on the long term fixed rate mortgages will be returning to the market place.

Edited by moosetea

Share this post


Link to post
Share on other sites
Have you got any graphs/data to show that? I'd be interested to see them.

It's not rocket science - the market sees the same data as the MPC, so tends to price in the likely course of rates before it happens (in the front end of the rates curve anyway)...

Share this post


Link to post
Share on other sites
It's not rocket science - the market sees the same data as the MPC, so tends to price in the likely course of rates before it happens (in the front end of the rates curve anyway)...

quite, but it also makes the BOE job a little easier as they also see the libor rate?

Edited by moosetea

Share this post


Link to post
Share on other sites
What? Why? This doesn't follow at all.... 2y swap rates just represent interest rate expectations...

My thinking behind it was more the BoE would see the general public having more money as their mortgage rates were coming down. As they have more money then they will spend more and dont feel the crunch as much. The BoE could try to bring inflation to 2% and jack up rates.

Share this post


Link to post
Share on other sites
No, not really. Why would it?

because they can take a peek at what the market expects, its like going to an exam having the answers turned over on the table in fount of you in case you want to take a peek....

Edited by moosetea

Share this post


Link to post
Share on other sites

That graph is interesting reading.

If you looked at the data from say the last 30 years is it the same or has this happened since independence?

So if the Libor rate is diving then it's likely the BoE will be cutting rates in the near future? Is that a logical conclusion to be making?

Share this post


Link to post
Share on other sites
My thinking behind it was more the BoE would see the general public having more money as their mortgage rates were coming down. As they have more money then they will spend more and dont feel the crunch as much. The BoE could try to bring inflation to 2% and jack up rates.

Ah ok. I think it’s a pretty tenuous conclusion to draw, but there is some truth in what you say – the MPC use market forward rates in their models, and as forward rates fall, inflationary pressure rise in the model - all other things being equal. However, remember that market rates have fallen because perceived inflation risks have fallen, which the market believes may enable the MPC to cut rates more than previously envisaged, so I think you’ve got the causality the wrong way around.

because they can take a peek at what the market expects, its like going to an exam having the answers turned over on the table in fount of you in case you want to take a peek....

Not really “answers”, more like seeing what someone else thinks that you will answer. As I say above, the MPC is largely model-based, though every member does get an equal vote. Having said this, however, there is a kind of feedback loop going on as the MPC does not want to surprise the markets too much (the theory of central bank transparency), and every time !(of the few times) I have met an MPC member I have asked them how they see that as being resolved, but none have had an answer.

Share this post


Link to post
Share on other sites

Regardless of Base rates, libor and swap rates must have been massively influenced by the Boe special liquidity scheme, short term auctions,NR bailout etc, etc. Without this support, lack of liquidity and real lending rates would have gone through the roof.

Question is, being supposedly only £500 bn into £1,000 bn of writeoffs and with UK foreclosures yet to really get going, how much longer will they be able to provide this life support ???

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 396 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.