5 year fixed rates thread

[ned261]

trying to understand bonds but it's just not working ..

Token, keithj, and other bond-aware people here, for the many(?) of us that are less in the know, could you please explain the contents of the Bloomberg government bonds link below - ie. coupon, price/yield, the yield curve and the bar chart underneath it, and how all this relates to the bonds currently being issued by our banks which is what I'm assuming dictates the advertised fixed bank residential rates. Thanks in advance.

The RBA publishes 2,5 & 10yr swap rates daily in an XLS spreadsheet.
Bloomberg publishes rates to 15yrs daily with some useful graphs.

Also the 30 day yield curve published daily by the ASX.

I use http://www.interest.com.au/Borrowing/Mortgages/index.htm for each lenders fixed rates - it appears to be updated frequently. There are others - infochoice.com.au.

The longer dated swap rates jumped yesterday to the levels of mid December - if that trend continues I'd expect bank lenders to start increasing fixed rates.

The public watches the bank fixed rates. The banks watch the swap rates. The swap rate traders watch the economy & RBA. Watching earlier in the chain of watchers will give you more warning about rises in fixed rates.

I'd be interested in fixed rates sites that others watch - particularly those earlier in the chain.

 

[keithj]

Token, keithj, and other bond-aware people here, for the many(?) of us that are less in the know, could you please explain the contents of the Bloomberg government bonds link below - ie. coupon, price/yield, the yield curve and the bar chart underneath it, and how all this relates to the bonds currently being issued by our banks which is what I'm assuming dictates the advertised fixed bank residential rates. Thanks in advance.

In the Bloomberg table I ignore every column except the fixed rate period and the current yield. Using the table below the 5 yr rate is currently 3.91%. Last Monday (before the -1% RBA drop) it was around 3.30%, so it's increased by 60bps (60 basis points or 0.6%) since then. That's a significant increase - HKs post above has some thoughts on what it may mean.

The yield curve graph below the table, shows the yield for various expiry dates. And the bottom graph shows the difference from yesterday. eg the 3yr bond yields 0.05% more than yesterday, but 7yr+ bonds are yielding slightly less.

These graphs are short term - they change on a daily basis. The banks change their fixed rates every few months (or weeks). When the banks borrow $$$ from elsewhere they negotiate the price/yield they pay based on the risk free govt bond rate.

 

[JIT]

Newcastle Permanent, whoever they are, 5.29% pa fixed for 4 years (damn that seems cheap), and 5.44% pa fixed for 3 years!

 

[House_Keeper]

Before fixing your rates for 3 years, you might want to ask yourself what are interest rates likely to be in 3 years? Could a jump in the interest rate you pay cause you a problem then?

 

[oracle]

Newcastle Permanent, whoever they are, 5.29% pa fixed for 4 years (damn that seems cheap), and 5.44% pa fixed for 3 years!

What about 5 years and beyond?

Cheers,
Oracle.

 

[BoatBoy]

Before fixing your rates for 3 years, you might want to ask yourself what are interest rates likely to be in 3 years? Could a jump in the interest rate you pay cause you a problem then?

Well you'll still be getting that if you fix or not, but fixing may well give the opportunity to stash some cash in preparation for the higher rate.

Dave

 

[Perth Investor]

I'm not sure I can hold out

With all this talk of increasing yield curves and with Bankwest already increasing their fixed rates I don't think I will hold out much longer.

I am waiting a phone call from my banker at NAB. Their 5 year rate is 6.49%. If I can convince her I'm a nice guy and she should reduce it to 6.29% I will probably go for it now.

It makes me a little feverish to lock something in 1.25% above what I'm getting at variable but surely over 5 years 6.29% will be better than the average variable rate?

The property that is attached to this yields 6.1% and is brand new with good depreciation, so even at 6.29% I will end up a bit positive after tax. Should I be greedy and try and get 4.5 -5 on variable and be much more positive, or do I guarantee that I will be around to stay and fight in 5 years time regardless of what rates do in the meantime?

I'm trying to convince myself here, if anyone else wants to help me, or wants to try and unconvince me!

Noel

 

[MichaelW]

With all this talk of increasing yield curves and with Bankwest already increasing their fixed rates I don't think I will hold out much longer.

Be careful!

Don't forget that we haven't really even entered this recession yet. Its far too early to expect an inflation explosion.

Here's some sage words from Ross Gittins in the SMH today:

Reserve goes back to the drawing board on rates

Something the Reserve will have in mind is that however low rates go, it won't be able to start putting them back up before it's clear unemployment is coming down.

This suggests that, once rates hit bottom, they'll stay where they are for quite some time, maybe several years.

If so, the Reserve needs to ensure it doesn't push rates too low and thereby risk initiating an inflation problem or a new asset-price bubble, as the US Federal Reserve did when it held its official rate at 1 per cent for far too long earlier in this decade.

I think he's on the money. The RBA will be holding their variable rate down for a looooong time. I wouldn't be rushing to add a 100bp to your variable rate just yet. You'll be wearing that pain for years. What's the point of fixing for 5 if the variable is going to be lower for the whole time!

Maybe wait 3 years and fix when the RBA rates eventually start to move up. This is only the beginning...

Cheers,
Michael

 

[AUSPROP...]

risk initiating an inflation problem? with the printing machine running hot, an ageing population, rates at all time lows... perish the thought

 

[nonrecourse]

Be careful!

Don't forget that we haven't really even entered this recession yet. Its far too early to expect an inflation explosion.

Cheers,
Michael

Hi Michael;
Here is a different point of view;

http://afr.com/home/login.aspx?EDP://20090209000030815862&section=world

 

[MichaelW]

Hi Michael;
Here is a different point of view;

http://afr.com/home/login.aspx?EDP://20090209000030815862&section=world

Hi Nonrecourse,

I was talking about Australia and the RBA, not about the US and the other "advanced economies" that are in recession. But I'll agree that we're on the verge. I don't think the local economy will dodge a technical recession and I think it might hang around for a year or two.

I'm less concerned with inflation in the near term though. With the fractional banking system destroying trillions of dollars by adopting too much leverage and paying the price, all the work the governments are doing to bail them out by printing money is non-inflationary as it just acts to replace the destroyed money. Its not adding to the money supply, its just filling some of the gap that the destroyed supply is leaving.

The bigger risk is deflation in the near term. 2009/10 will be interesting.

Cheers,
Michael

 

[House_Keeper]

The RBA will be holding their variable rate down for a looooong time.

That's not what the financial markets think.
http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

The expectations indicate that variable rates will start to climb back up early next year.

By the time variable rates start to rise, fixed rates will already have started to rise.

While every property investor would love to have low interest rates for a long time, you need at least to be prepared to a different scenario.

Cheers,

 

[House_Keeper]

Well you'll still be getting that if you fix or not, but fixing may well give the opportunity to stash some cash in preparation for the higher rate.

Dave

The question is should you be fixing for longer than 3 years, maybe 5 or 10 years maybe?

 

[Rixter]

The question is should you be fixing for longer than 3 years, maybe 5 or 10 years maybe?

For who??

Everyone is different - different portfolio sizes, different debt levels, different income levels, different goals and goal time frames, and different personal risk profiles.

 

[BoatBoy]

Westpac have made some adjustments down from last time

Jan 07 2009 and Feb 09 2009 shown for comparison

Seems the comparison rate has dropped but the base rate has remained the same

Dave

 

[Gools]

Dave, what exactly were you comparing? The 5 year fixed hasn't changed.

Gools

Westpac have made some adjustments down from last time

Jan 07 2009 and Feb 09 2009 shown for comparison

Seems the comparison rate has dropped but the base rate has remained the same

Dave

 

[Rolf Latham]

Ahhh

the foibles of comparison rates .

The reason the comp rate has gone down, is because after the fixed rate expires the CRS legislation says you must roll to the current variable.

Hence, as variables decrease the comp rate is affected downward on fixed rate products even though the rack rate hasnt changed.

ta
rolf

 

[perky29]

I might have to get a Westpac business loan - and noticed that the variable has dropped by 1% in the last week to 7.69 % but fixed 2 and 3 yr have jumped UP by .55% and .6% respectively to 6.35 and 6.8%....what gives??

 

[BoatBoy]

Dave, what exactly were you comparing? The 5 year fixed hasn't changed.

Gools

5 year comparison rate in Jan was 6.87% and Feb it is 6.31% - discount

Dave

 

[kissfan]

I might have to get a Westpac business loan

Hi Dave.

Are Westpac pushing the business loan on you re I/P's or is it regarding another issue (in which case I'll mind my business ).

Regards
Marty