Whats Happening in Finance and Property Investment

Up, Down, and all around for Interest Rates - what is happening!

John Smith - Thursday, November 20, 2014

Lots and lots of talk in the media about where people see interest rates heading. No wonder everyone is confused.

Also some weird calls from economists, like one that said interest rates would rise next year and then fall again after that.

Funny how the futures market shows exactly the opposite for the next 18 months.

I will try not to be cynical, when I see it is someone associated with  providing home loans and their fixed rates are higher than their variable rate.

As I was saying the Futures implied yield curve for the next 18 months shows a slight downward curve until August 2015, however it is about 0.07% so I  doubt the RBA will drop rates by the normal 25 basis points or 0.25% unless something else triggers it.The market knows the RBA don't want to overheat the property market any more than it is, and raising interest rates will kill off any economic recovery.

Then the curve rises again up to April 2016, but only by about 0.095%, so in essence where we are now.

In other words for the next 18 months 'The Market' does not see any change to official rates, so I have to wonder where these so called economists are getting their information, especially as this is the data that the banks use to hedge themselves for any movements.

I also suggest the rise at the end of the curve is more about risk, than expectation. You see the further we go into the future the more risk there is that the curve is wrong, and so you have to pay more for your hedge.
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