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Credit Crunch?
Generali
Posts: 36,411 Forumite
While we've been chewing the cud, events have overtaken the bond market.
Link
If you can't be bothered to read it:
If you're a borrower, now might be an excellent time to fix your rates.
Link
If you can't be bothered to read it:
US and European financial markets regained some poise on Friday after a week marked by a dramatic rout in the bond markets and a steep equity sell-off.
US Treasury bonds were initially battered in early trading before recovering some losses, intensifying investor worries that an era of easy credit that has helped fuel a buy-out boom and gains across asset classes is drawing to a close.....
...“Arguably, we are now leaving the post-2002 ultra-low yield environment,” said David Brickman, credit strategist at Lehman Brothers....
...“Such is the classic end to a bull market,” said Ciaran O’Hagan, head of strategy at SG Fixed Income [she was not referring to houses btw].....
If you're a borrower, now might be an excellent time to fix your rates.
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Comments
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Can you explain what this means in little words, for those of us that don't work in a Big Bank?
Why would selling treasury bonds change increase rates in the UK?"Mrs. Pench, you've won the car contest, would you like a triumph spitfire or 3000 in cash?" He smiled.
Mrs. Pench took the money. "What will you do with it all? Not that it's any of my business," he giggled.
"I think I'll become an alcoholic," said Betty.0 -
Guy_Montag wrote: »Can you explain what this means in little words, for those of us that don't work in a Big Bank?
Why would selling treasury bonds change increase rates in the UK?
Guy you're such a thicko..:rolleyes:0 -
Trying to put it in simple terms:
A Conventional Gilt is a bond issued by the UK government. They have a face value of £100 and are sold by auction by the Bank of England and pay a fixed rate of interest on that £100 known as a 'coupon'. When they mature (on a date fixed at sale) they return £100.
As the coupon a Gilt pays is fixed, as the price of the bond rises the yield falls and vice versa.
Gilts and the like are seen as 'risk free' investments. The UK government is one of 10 countries that hasn't defaulted on its debt since 1824 and also there is no good reason for a Government to default on lending in it's own currency - if it needs to repay debt it can just print more money. As such they are used as a benchmark for lending - why would you lend to an individual on a mortgage at a lower rate than you can lend 'risk free' for?
Gilt yields have been at very low levels for a number of years. This has been due in part to buying by Far East Central Banks trying to keep their currencies at a low level so they can export more back to us.
If yields on Gilts rise, banks will increase the cost of other sorts of borrowing to maintain their 'risk premium' (the extra profit a bank wants to earn in return for taking on extra risk).0 -
So by selling off gilts (they get cheaper) the yields rise & therefore the banks lose interest in lending to joe punter.
But joe punter still wants to borrow from them, so being good capitalist pig-dogs, the banks will lend to them but at higher rates or under tighter conditions.
Is that roughly right?"Mrs. Pench, you've won the car contest, would you like a triumph spitfire or 3000 in cash?" He smiled.
Mrs. Pench took the money. "What will you do with it all? Not that it's any of my business," he giggled.
"I think I'll become an alcoholic," said Betty.0 -
Pretty much.
The banks answer to their shareholders and regulators. Their shareholders (you via your pension for example) want to maximise their return from owning the bank. The regulators insist that risk is taken into account when lending.
Therefore the banks can't just throw their money away lending on mortgages if they can lend to someone else and make more.0 -
Basic idea is as bonds go down rates go up or visa versaWeekly Spend Challenge: £0/£30
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So is the UK market mirroring the US market?"Mrs. Pench, you've won the car contest, would you like a triumph spitfire or 3000 in cash?" He smiled.
Mrs. Pench took the money. "What will you do with it all? Not that it's any of my business," he giggled.
"I think I'll become an alcoholic," said Betty.0 -
pointypenguin wrote: »Basic idea is as bonds go down rates go up or visa versa
The two are inextricably linked.
And bond yields are linked to all other types of private sector lending. If bond prices are going to be higher perminantly, the cost of borrowing will be higher.0 -
Guy_Montag wrote: »So is the UK market mirroring the US market?
To some extent. The problems of the UK and US economies are similar so the desire to hold their governments' debt will be governed by similar factors.0 -
Presumably this means tha Japanese bond prices are high - why would this be?
Do all govts. issue bonds?"Mrs. Pench, you've won the car contest, would you like a triumph spitfire or 3000 in cash?" He smiled.
Mrs. Pench took the money. "What will you do with it all? Not that it's any of my business," he giggled.
"I think I'll become an alcoholic," said Betty.0
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