Hi All
I noticed that the NAB have the three year fixed at 6.89%. This has actually come down from where it was i think 6.99%.
Any of you have any ideas of how to interpret these fluctuating rates.
I have heard it said that you cant beat the banks they have factored in rises etc.
1year 6.79%
2year 6.89%
3year 6.89%
4year 7.07%
5year 7.17%Can one really get something out of these figure rates to determine where interest rates might be. Could they still be 12% in 5 years when the bank is happy to lend at 7.17%.
regards
alfFixed rates fluctuate as the future interest rate predictions by their analysts change.
It’s hard to “beat the banks” here.
Some years ago, I benefited for a while during a prolonged downward trend by taking 12 month fixed rates, which were less than the variable at the time. I rolled these twice, so got 3 years of below variable.
Normally though, it’s pretty hard to win this game, and no, I’m not fixing any of my current loans.
Max Hugen [email protected]
Alpha Financial
Residential & Commercial Loans
http://www.alphafinancial.com.au
02 9560 3061G’day Alf,
I wouldn’t necessarily take banks fixed rates as ‘predicitons’ or use these in any way to try and predict where rates are going.
NAB, as well others, have for a while now been promoting a 3 year fixed rate that is lower than the two, and sometimes a 5 year fixed rate that is lower than the 4 year fixed rate for example. Banks use the fixed rates (priced off what they have paid for the funds in the case of the smaller funders) as a retention strategy as well – as there are penalties to pay them out early.
I would agree that it certainly very hard to beat them at this game!
Matt Anderson
Sorry to bust your bubble on how they set the rates. There is an interbank fixed interest rate market in Australia (called the Swap Market) that allows banks, corporates etc to fix there rates out to 10 or so years. They also use this to exchange money borrowed overseas into Aussie dollar exposure (cross currency swaps).
Fixed rate mortgages are based on where this market is trading not on some magical prediction from an analyst.
You can look up the rates in the Financial Review markets section every day.
And yes you can have 5 yr rates lower than 4 yr rates…it is called an inverse curve.
Yes that’s correct but the sellers in the money markets would not sell money to the banks if they thought they were going to loss. Therefore interest rates are a reflection of where the “market” thinks rates are heading.
Plus the large banks fund mortgage monies from deposits and their own “internal cost of funds” through their treasury departments. Therefore they are not always directly affected by the “market”.
I think you can use the prevailing rates as an indication of future interest rate movements.
Cheers
Stu
Stu…I see what you mean but in practice.
It is not so much ‘sellers of money” it more supply and demand and the swap market matches up the different parties. There are thousands of factors that feed into this market and the view of where interest rate are headed is only a very small part of this. (many layman books on the markets promte this idea but only because the author probably has never set foot in a dealing room)
As for internal cost of funds….fixed rate loans are swapped back to be a floating rate exposure and whilst the internal division may offer slightky lower cost of funds the mortgage division will have to the pay transfer pricing rate which is a function of and linked to the external market.
All markets are based on expectations. Traders, institutions, etc. take positions in the market to either make money or protect (hedge) their positions. Either way, they take a view of where the market may be heading and act upon it.
It’s the same with everything. Generally, a buyer purchases because he thinks he’s getting good value and a seller sells because he thinks he’s getting good value.
Supply and demand is driven by expectations.
When the market (about 4 – 6 months ago) was talking about interest rate rises fixed rates were increasing. Now the RBA has not moved rates and the market is suggesting that there may only be one rate rise (if at all) fixed rates are falling. Is this a mere coincidence?
The suggestion that markets do not reflect expectations is extreme and goes against any technical and quantative analysis (and against any financial market theories I have studies).
Cheers
Stu
“studied” and “theories”…exactly waht i mean…yes traders are taking a view but not on interest rates, just where the next trade will be, they don’t care about the underlying product.
Hedge funds (the biggest sector of the market) don’t have interest rate views they just look to capture direction in the market.
BTW..my views come from 14 years as a interest rate trader in the financial markets.
“studied” and “theories”…exactly waht i mean…yes traders are taking a view but not on interest rates, just where the next trade will be, they don’t care about the underlying product.
Hedge funds (the biggest sector of the market) don’t have interest rate views they just look to capture direction in the market.
BTW..my views come from 14 years as a interest rate trader in the financial markets.
Hedge funds (the biggest sector of the market) don’t have interest rate views they just look to capture direction in the market.Direction of the market?
Anyway, I’ll guess we’ll just agree to disagree.
Cheers
Stu
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