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Investors abandon bets on early rate tightening - BIS
inspector_monkfish
Posts: 9,276 Forumite
07:45 14Sep09 - BIS-Investors abandon bets on early rate tightening
FRANKFURT, Sept 14 - Investors have retreated from bets on early interest rate rises from major central banks and are resigned to a slow, shaky economic recovery, the Bank for International Settlements said on Monday.
In its latest quarterly report, the BIS said markets had continued to pick up, buoyed by strong financial sector earnings and increased optimism about the economic outlook, although markets had been buffeted by mixed data.
Worries about large budget deficits and high debt levels could put upward pressure on forward bond rates, although five-year/five-year forward rates had recently dropped in both the United States and the euro area.
"Over time, bond investors seemed to take the view that while the worst of the economic downturn was over, the recovery process would be gradual and vulnerable to negative shocks," the BIS said.
Recognition of a fragile recovery had also encouraged markets to abandon bets major central banks would raise rates before the end of the year.
"Amidst debate about the pace at which this monetary easing should be withdrawn, expectations of an early start to the normalisation process for policy rates were pushed back considerably," the BIS said.
Analysts expect the European Central Bank, the Bank of England and the U.S. Federal Reserve to keep rates on hold at historic low levels until the second half of next year.
The BIS said when the time came for central banks to unwind their support measures -- which include buying bonds as well as low rates -- the order in which they withdrew support would depend on whether they saw the action of buying bonds as more important than holding the bonds.
The BoE could arguably be said to focus on holding bonds as stock, meaning that an exit strategy could involve selling bonds and then raising rates.
"On the stock interpretation, to raise the short-term interest rate while never selling the bond holdings would be to tap the brake while the other foot remained firmly on the accelerator," the report said.
The Fed could be said to focus on buying bonds, meaning that an exit strategy could involve raising rates while still holding on to bonds.
FRANKFURT, Sept 14 - Investors have retreated from bets on early interest rate rises from major central banks and are resigned to a slow, shaky economic recovery, the Bank for International Settlements said on Monday.
In its latest quarterly report, the BIS said markets had continued to pick up, buoyed by strong financial sector earnings and increased optimism about the economic outlook, although markets had been buffeted by mixed data.
Worries about large budget deficits and high debt levels could put upward pressure on forward bond rates, although five-year/five-year forward rates had recently dropped in both the United States and the euro area.
"Over time, bond investors seemed to take the view that while the worst of the economic downturn was over, the recovery process would be gradual and vulnerable to negative shocks," the BIS said.
Recognition of a fragile recovery had also encouraged markets to abandon bets major central banks would raise rates before the end of the year.
"Amidst debate about the pace at which this monetary easing should be withdrawn, expectations of an early start to the normalisation process for policy rates were pushed back considerably," the BIS said.
Analysts expect the European Central Bank, the Bank of England and the U.S. Federal Reserve to keep rates on hold at historic low levels until the second half of next year.
The BIS said when the time came for central banks to unwind their support measures -- which include buying bonds as well as low rates -- the order in which they withdrew support would depend on whether they saw the action of buying bonds as more important than holding the bonds.
The BoE could arguably be said to focus on holding bonds as stock, meaning that an exit strategy could involve selling bonds and then raising rates.
"On the stock interpretation, to raise the short-term interest rate while never selling the bond holdings would be to tap the brake while the other foot remained firmly on the accelerator," the report said.
The Fed could be said to focus on buying bonds, meaning that an exit strategy could involve raising rates while still holding on to bonds.
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Comments
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So, fat lady ain't singing yet, its gonna be a long hard haul outta where we are, and a fair amount of stagnation all round for a couple of years yet eh?
Makes me wonder if som of the 5 year bonds on offer may be worth a punt if interest rates aren't due a raise for a little while?It's getting harder & harder to keep the government in the manner to which they have become accustomed.0 -
lemonjelly wrote: »Makes me wonder if som of the 5 year bonds on offer may be worth a punt if interest rates aren't due a raise for a little while?
I'm definitely considering fixed rates for our cash ISA's.In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:0 -
I'm definitely considering fixed rates for our cash ISA's.
Most of my Isa's are now fixed.
A year or so ago, a halifax isa that I, my dad & my brother all held one of matured, & they gave re-investment options of 1,2,3 or 4 years. I chose 4 years at 6.2%. They both went for 1 year at 6%. Guess who is smiling now in our house
It's getting harder & harder to keep the government in the manner to which they have become accustomed.0 -
Does this mean that fixed rate mortgage rates will now fall?"I can hear you whisperin', children, so I know you're down there. I can feel myself gettin' awful mad. I'm out of patience, children. I'm coming to find you now." - Harry Powell, Night of the Hunter, 1955.0
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Harry_Powell wrote: »Does this mean that fixed rate mortgage rates will now fall?
Pass, but I am glad I did not take DD's advice to get a long term fix instead of a lifetime tracker.;):)0 -
I'm thinking the same. Luckily I'm still in the process of sorting my mortgage, but need to have it done by the end of this week ideally. I'm totally stuck with which way to turn!! Grrr!!!
BTW, when did DD advise you to take a fixed rate mortgage instead of a tracker?"I can hear you whisperin', children, so I know you're down there. I can feel myself gettin' awful mad. I'm out of patience, children. I'm coming to find you now." - Harry Powell, Night of the Hunter, 1955.0 -
Harry_Powell wrote: »Does this mean that fixed rate mortgage rates will now fall?
maybe, but not too much i would have thought.
i can't see them falling too much as banks will have to start absorbing bad debts and they will have to start passing these bad debt charges onto new borrowers.
the percentage amounts is all dependent on the future levels of bad debts and also the amount of future lending.0 -
Investors abandon bets on early rate tightening - BIS
I bet the Schiffter and his loyal band of disciples (called 'the Loons') havn't :eek:'In nature, there are neither rewards nor punishments - there are Consequences.'0 -
Harry_Powell wrote: »BTW, when did DD advise you to take a fixed rate mortgage instead of a tracker?
He, did not personally. Just a little joke.
But trackers are dead now. I would say First direct SVR then switch when Base rates look to be near to going up.0 -
Pass, but I am glad I did not take DD's advice to get a long term fix instead of a lifetime tracker.;):)
from the CML http://www.cml.org.uk/cml/media/press/2397In terms of product choice, over three quarters of mortgages taken out in July were at fixed rates, with borrowers able to lock in to an average fixed rate of 4.7%, well below the average of 5.57% over the past decade.
Not necessarily that bad to fix at rates below the last decade average.
It may turn out your risk is better reward, but for many, they will be glad of the security of knowing what their payments will be.
Should quosh a lot of the "but when interest rate rises they'll be in trouble" [STRIKE]arguments[/STRIKE] debates:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0
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