Tide turning for interest rates?

lvader

Glen_Clark wrote: »

So an 80% increase is fairly pointless. (and it rose another 3% today.)
How high will it have to go before it isn't pointless?

Measuring a percentage change as another percentage is pointless and missleading because a very small change can look big. Yes yields are higher but still low.

Ark_Welder

lvader wrote: »

Measuring a percentage change as another percentage is pointless and missleading because a very small change can look big. Yes yields are higher but still low.

A debtor might disagree. An individual or company that has taken out debt at a low rate of interest might be more interested in the 80% increase in the cost to them of servicing that debt rather than the equivalent figure of a 1.31 percentage points increase in the rate (either immediately through a variable rate, or subsequently if the debt is refinanced); the cost as a percentage of revenue (i.e. after-tax income for an individual) is what will be paramount.

Something to watch out for, both on the mortgage front and for those companies that have raised debt to either keep dividends going (or rising) or to buy back shares. These companies are not investing in themselves with the intention of raising their long-term revenue-generating capacity (which would make it easier to service that debt at a higher rate later on - or reduce the level of debt, or repay it completely), they are, in effect, giving the jam to today's shareholders at the expense of tomorrow's shareholders.

John1993_2

Ark_Welder wrote: »

The word 'yield' is rather ambiguous when used in relation to bonds, so - in this particular case - qualifying it as 'yield to maturity' would have carried more meaning.

In the bond trading world both would be used interchangeably, with just about no-one using the longer form.

John1993_2

Glen_Clark wrote: »

Well as you are an interest rates trader perhaps you can tell us when UK Bond yields were -10bp

UK rates haven't been, bit we've seen it temporarily in EUR in recent times. When people are flush with cash, and need to park it somewhere safe, it's possible for yields to go negative.

Oh, and edited to add, long-dated real yields (a number discussed pretty often) are negative right now. Under your methodology, how would you describe the change in real 30y yields over the last two years?

John1993_2

Glen_Clark wrote: »

So an 80% increase is fairly pointless.

Yes, exactly.

We got there in the end.

Glen_Clark

bowlhead99 wrote: »

you could say the yield to maturity on a government 10 year bond has gone up from 1.62 to 2.93, by cherry picking yor time periods.

Well the thread title is 'Tide turning for interest rates?' so it seemed logical to start at what may be 'low tide' - the lowest point, and compare it with now. - still rising today by the way, 10 year UK Bond Yields are now 3.05% and the FT headline Markets bet on UK rate rise two years early
You make valid points as always, but I wasn't intending to get as complicated as that. I was simply trying to explain what constitutes an 80% increase (in interest payments.or rent).

bowlhead99

John1993 wrote: »

long-dated real yields (a number discussed pretty often) are negative right now. Under your methodology, how would you describe the change in real 30y yields over the last two years?

I'm guessing if you're looking at a yield flipping into negative territory then someone describing it the layman way might say the bond income has fallen by over 100% (e.g. it was paying you, then it paid you 25% less, then 50% less, then 100% less, now over 100% less i.e.you are paying it) . That's just basic maths.

As you mentioned in another post though, it's harder to visualise the flip back the other way when a real rate starts to go from -15 bps to +150bps.

Which is why people don't quote percentages of percentages when describing the movement against this sort of scale. Just quote the actual number of percentages points or basis points it has moved against its comparator (inflation, 3-month libor, 10-year gilt, 30 year gilt, 10 year US, etc etc).

For example, if the temperature outside is 30C a few weeks ago is not twice as hot as when it is 15 degrees nor negative ten times as hot as it was overnight in January. You could perhaps say it's 33/270ths hotter than January on a scale starting at absolute zero where the atoms weren't moving, but still not much meaning for anyone. Information in isolation is generally useless without all the relatable facts.

talexuser

Ark_Welder wrote: »

they are, in effect, giving the jam to today's shareholders at the expense of tomorrow's shareholders.

I immediately thought an accurate fiscal description of UK plc... :eek:

jimjames

alanq wrote: »

The 3% 5-year fixed rate is available for in both ISA and non-ISA form.

Just signed for fixed mortgage rate for 2.99% for 5 years so margin between savings and loans is still negative!

grizzly1911

Ark_Welder wrote: »

These companies are not investing in themselves with the intention of raising their long-term revenue-generating capacity (which would make it easier to service that debt at a higher rate later on - or reduce the level of debt, or repay it completely), they are, in effect, giving the jam to today's shareholders at the expense of tomorrow's shareholders.

The wonders of capitalism.

No doubt the executives will give ensure they obtain generous bonuses for short term performance.