The fed just raised interest rates by .25%

Thrugelmir

worldtraveller wrote: »

The Fed also announced plans to start gradually paring its bond holdings later this year, which could cause long-term rates to rise.

A process which may take many many years.

economic

Thrugelmir wrote: »

A process which may take many many years.

and may reverse it if the conditions deem it to be neccessary.

remember the fed needs some leeway in case there is a recession in the US. also things are looking positive in the US from a corporate earnings view along with other factors. both mean that rates should be risen and i expect gradual rate hikes over the next couple of years.

things look very uncertain for the uk however i think this is just uncertainty around brexit. once brexit is cleared one way or another (soft or hard), things should improve for the uk. rate hikes should then follow.

Thrugelmir

economic wrote: »

and may reverse it if the conditions deem it to be neccessary.

There's $4.5 trillion of debt on the Fed's balance sheet. Initial plans would suggest it would take 6/7 years to offload just £1 trillion. The US is ahead of the cycle. Earlier into the GFC, interest rates lower . A good indicator for the direction the UK is likely to follow.

economic

Thrugelmir wrote: »

There's $4.5 trillion of debt on the Fed's balance sheet. Initial plans would suggest it would take 6/7 years to offload just £1 trillion. The US is ahead of the cycle. Earlier into the GFC, interest rates lower . A good indicator for the direction the UK is likely to follow.

its a delicate balance between not selling too quick so as to not create a large selloff in rates vs fast enough so as not to overheat the economy. the good news is it is "right-way" in that you have room to accelarate offloading as the economy becomes more inflationary as this supports higher rates. the problem is the FED not doing it fast enough to have some cushion if we do get a recession. this is the main risk.

if you look the ECB, they own something like 40% of all outstanding EUR sovereign debt? thats a ridiculous amount. they desprately need growth to accelrate in all the indebted EZ countries. otherwise they could end up with 100% of the debt. i really can not see how the EZ can get out of this mess without ether triggering a major debt/banking crisis or they simply need to reform massively which aint gonna happen.

i have heard they are thinking about creating a ABS for EZ debt. packagin git all up and selling the tranches in order to offloading the debt in the ECB balance sheet in a orderly manner without creating a shock. this is basically like a eurobond which they should have created in the first place however countries like germany would have none of it. ABS would be a way around that. i would be a buyer of the equity tranche (if priced attracively) as if things do go belly up, all the bonds (except maybe bunds), would crash anyway!

Thrugelmir

economic wrote: »

its a delicate balance between not selling too quick so as to not create a large selloff in rates vs fast enough so as not to overheat the economy.

Simply by not reinvesting all of the income and nor the funds generated on the maturity of debt are ample enough. What it then creates is a freer market for new debt issuance. Buyers themselves will price the debt on issue and whether to invest or not.

economic

Thrugelmir wrote: »

Simply by not reinvesting all of the income and nor the funds generated on the maturity of debt are ample enough. What it then creates is a freer market for new debt issuance. Buyers themselves will price the debt on issue and whether to invest or not.

by selling before maturity, they create headroom in case they do need to do more QE further down the line. i dont think letting bonds mature and having new issues creates a freerer market then just selling them in the market before maturty. the market will decide the bid.

Thrugelmir

economic wrote: »

by selling before maturity, they create headroom in case they do need to do more QE further down the line. i dont think letting bonds mature and having new issues creates a freerer market then just selling them in the market before maturty. the market will decide the bid.

Much of the debt held is in RMBS. So they'll be variable maturity lengths. Once matured the lenders will need to refinance the debt elsewhere.

economic

Thrugelmir wrote: »

Much of the debt held is in RMBS. So they'll be variable maturity lengths. Once matured the lenders will need to refinance the debt elsewhere.

i wastalking about treasuries but yes agree with you on rmbs.

HornetSaver

westernpromise wrote:

Mortgage rates today are pretty close to the 300 year average.

No, they're at historic lows.

Which is just as well, because property prices in economically active parts of the country are at historic highs, and lending requirements across the board are historically strict.

I don't deny that there are opportunities to be had for people able to get onto the ladder now. I don't even deny planning to take advantage of this to get onto the ladder myself, on the basis that if what I think will happen fails to materialise I'm still in a good place. But anyone who thinks that timing-related gains from property is more a case of judgement than luck is kidding themselves.

Thrugelmir

HornetSaver wrote: »

No, they're at historic lows.

Which is just as well, because property prices in economically active parts of the country are at historic highs, and lending requirements across the board are historically strict.

Lending criteria has simply returned to a bygone era. When lenders took more care as to how they lent their money.