5 year fixed rates thread

I don't know about that one,this time last year the cash rate was 7.25% today it's 3%

because of ongoing uncertainty and weak fundamentals


,oil us a barrell one year ago was $112.00 now it's in the low 70$$$ range

same


10 year bonds are not much different 5.9 down to 5.6


- Aussie 10yr 12 mths ago 6.2% (14mths ago 6.7%), now 5.5%
- US TNX 12 mths ago 3.86, now 3.46

- 12 mths ago the yield curve was inverted. today it isn't. so the relationship between the cash rate and bond yields was different to today's environment.


,gold up from $792.00 -one year ago $950.00,and with that room to move the rates may go up a lot quicker that most think imho, this time last year the ASX was in the 5039 range,,willair..

I am not ruling out rate rises. Glenn Stevens' rhetoric, especially that 3% is an emergency level, underscores that.

Nevertheless, with projected negative real gdp growth and property prices at today's levels, I doubt the average Aussie cash rate over the next 3 years will be >=5.5%.


I've never been any good at precise forecasting,but it can only go 2 ways from this stage,if you listened to some punters Gold was going to be above $2000 an once,and the ASX was going into the low 2500 mark
your portfolio would have been hammered sideways if you went down that path, i still think it's going to be a slow upward trend from this stage,but that can change overnight:)..imho willair.

The $2000 an ounce calls weren't unrealistic considering the unprecedented nature of what was happening. Who would have thought the Aussie cash rate would drop to 3%....certainly not the Somersofters who fixed in 2008.
 

The $2000 an ounce calls weren't unrealistic considering the unprecedented nature of what was happening. Who would have thought the Aussie cash rate would drop to 3%....certainly not the Somersofters who fixed in 2008.

no - i agree as well - $2000oz was NOT unrealistic considering there was no end in sight.

however, i had a feeling that the cash rate rises were unsustainable and i hung on - by the skin of my fingernails - but i hung on.

i don't see any huge rises coming up. i trust my billing fees will be able to be met with the increase in housing demand we're seeing in WA propping up finished product prices.
 
was going through some old papers and found Suncorp's rates from September 2008

5yr fixed - 9.30
Standard variable - 9.49

looks like we'll have plenty of time to fix when margin between the two disappears again...

... but then, why would we?
 
was going through some old papers and found Suncorp's rates from September 2008

5yr fixed - 9.30
Standard variable - 9.49

looks like we'll have plenty of time to fix when margin between the two disappears again...

... but then, why would we?

And thats the thing, the time to fax and save has passed. The question we need to ask is not "when will rate hit 7%" but "will they hit 9%".

Peter
 
was looking at the westpac fixed rate for 12 years today - it is an option for me at 8.04%. hard to justify nearly a 3% spread over variable.
 
And thats the thing, the time to fax and save has passed. The question we need to ask is not "when will rate hit 7%" but "will they hit 9%".
Westpacs analysis reckons the SVR will peak at 7.5-8% this cycle.

When the Bank starts to move we assess that the first 100 bps of rate hikes will be relatively comfortably absorbed by the economy, but once the variable mortgage rate exceeds 6.25% (we assess that a significant proportion of borrowers are on rates well below the "standard" variable rate of 5.80%), rate hikes will elicit significant negative responses in confidence and spending.

Our analysis of the response of Consumer Sentiment to rate hikes in previous rate hike cycles indicates that the 'tipping point' (level at which rate hikes really bite) for the variable mortgage rate has decreased over time – 8.75% in 1994, 7.3% in 2000 and 7% in 2003. With household debt to income ratios up from 60% (1994) and 130% (2003) to 165% (2009) the 'tipping point' of the variable mortgage rate will be at an increasingly lower level. That is why we expect the cycle to be measured, to peak at around a cash rate of 5.5% to 6% (variable mortgage rate of 7.5% to 8%) and last for two to three years.
 
Good post Keith.

We forget that the object of raising rates is to slow consumer demand to keep inflation under 3%.

With the recent massive uptake by FHO (who typically have the least spare cash), coupled with the recent scare of "recession" and unemplyment, with the ongoing recovery issues in the US and Europe .....we could well see a much greater impact on spending arise from only a modest rise. If so then rate rises may come but stop at 1 to 2%. For me that a moz on 7.1% and very liveable.

Good point that our tolerances have changed over time. I know I was happy with 13% fixed in 1990 when my mates were paying 18% but would be close to ruined with 13% now. Hence I have decided to not fix as the benefits have passed and I am essentially a "buy and sell" strategy investor. Not fixing allows me to sell when things are to good to be true as I did in 2003.

Peter
 
Westpacs analysis reckons the SVR will peak at 7.5-8% this cycle.
You little ripper! :D

That's awesome as that's a very comfortable variable rate level. So why would anyone fix today at mid 7's if rates are going to max out at that level anyway? Just doesn't make sense.

And I knew from my readings elsewhere that each progressive cycle lowered the tipping point at which the variable rate bights hard enough to modify behaviour. There was a nice chart I saw of US rates which illustrated the point nicely too and showed why they had no more room to move with rates to stimulate the economy, unlike the RBA.

Cheers,
Michael
 
swap rates up again over the last few days, no surprise I suppose.

WBC are saying they will likley move again REAL soon, and its likley the lenders with bigger margins will follow as well.

Id expect higher movements on the 2s and 3s than the 5s, but who knows


ta
rolf
 
And I knew from my readings elsewhere that each progressive cycle lowered the tipping point at which the variable rate bights hard enough to modify behaviour. There was a nice chart I saw of US rates which illustrated the point nicely too and showed why they had no more room to move with rates to stimulate the economy, unlike the RBA.

Yes, as overall debt levels rise, the peak of the interest rate cycle gets progressively lower, eventually converging on ZIRP. The USA is much closer to this point than Australia. The next interest rate peak for Australia must be lower than the previous one.
 
I still think the RBA will hold rates steady for longer than most anticipate.
More news out today supporting this proposition...

Mixed economic outlook as retail demand slips, but consumer sentiment surges

Reuters said:
Australian retail sales unexpectedly fell in July, a second straight month of weakness that could fuel concerns about the resilience of consumer demand and push back the expected timing of a first rise in interest rates.

I still contend that regardless what happens with resi property price explosion to the upside, the RBA won't move on rates until they are confident we have a nice solid, cast-in-stone economic recovery. This result suggests that certainty might yet be some time off.

And related coverage:

SCOREBOARD: Hikes delayed

Adam Carr said:
While retail spending appears to have stalled, it's not all bad news for home owners with the likelihood of an October or November rate hike now severely diminished.

Cheers,
Michael
 
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I still contend that regardless what happens with resi property price explosion to the upside, the RBA won't move on rates until they are confident we have a nice solid, cost-in-stone economic recovery. This result suggests that certainty might yet be some time off.
Hi Michael.

Now...if only the banks are following this and apply logic as well.

Regards
Marty
 
Went to a pd yesterday by one of the big four. Their treasury boffin described why rates were on the up, both fixed and variable. Fixed rates have to do with bond markets o/s being swamped by government bonds etc, and pushing up margins.
Interestingly variable rates are to continue to go up too, because part of the funding comes from 3 and 5 years fixed portions, that are continually being refinanced. The margin on these, which has come down lately quite a bit is still orders of magnitude more than pre-gfc margins, and so another .1% will get added shortly to the standard variable outside of the reserve's changes....

If only the the bank boffin could have explained it to Swan, he wouldnt try to bash them all the time when they increase variable rates.......
 
If only the the bank boffin could have explained it to Swan, he wouldnt try to bash them all the time when they increase variable rates.......

but on a comparison basis our rates are still well above foreign rates. We really are an island!
 
Mote signs of an "L" shaped recession for me. A shallow L for Aus.

On the consumer confidence survey, to me that could be sumarised as "most feeling relieved they still have a job". I wonder what will happen when a few job losses start to rack up?

Anyhow, as I often say, a good investor rides the market, and does not control it. SO... as the Aussie $ is strong, and wife and I, celebrate this month 20 years anniversery.............. a trip to Hawaii is planned for October, maybe France in 2010.

Good Post MW, Peter
 
Peter,

Congratulations on the 20th. We're half way there. Still need the AUD to get a little stronger against the Yen.
 
More news out today supporting the proposition that the RBA is on hold for the medium term:

Minutes reveal RBA in no hurry to raise rates

SMH said:
The minutes of the Reserve Bank monthly board meeting, released today, fleshed out the terse statement issued by governor Glenn Stevens two weeks ago on September 1, but did not change its emphasis.

"As at the previous meeting members noted that the policy decision in the near term involved balancing the risk of over-staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand,'' the minutes said.

...

So, in short, the RBA is expecting to raise interest rates at some point, but with many doubts about the sustainability of the global and domestic recovery, and easing pressure on inflation, it has the luxury of taking its time to ensure it doesn't jump the gun and kill the recovery before it has had a chance to take root.

And, with a 2% plus rate differential between variable and fixed rates at present, I see no reason to rush to fix. 5% rates could be with us for another year or more yet.

John Mauldin's email today also spelled out the money velocity issue and the fact that inflation is not likely to take hold anytime soon. In short, you better hope we get inflation at some point. I won't quote it as I can't link it so I think that might be a copyright infringement and I don't want Sim to rap me on the knuckles... ;)

Cheers,
Michael
 
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