The central bank of the USA (and Australia, UK, Canada, Japan, New Zealand and other currency issuers) is the monopoly issuer of its own fiat. Like any monopolist, it can always set the price of its product (money). They choose to do this at the short end which provides an anchor / reference point for the entire curve. Nothing to do with savings. That's why there are no bond vigilantes. That's why interest rates have not spiked.
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b_b 26 Oct 2016, 01:03 PM
- People waiting for "market forces" to increase interest rates will be waiting a long long time
Please tell me again how the Market does not Influence Interest Rates........
Please tell me again how the Market does not Influence Interest Rates........
The state of the economy determines interest rates, but the money market (traders) don't have much influence although they can bend the curve a little. The traders are "betting" on what they think central banks might do, but central banks are NOT reacting to traders. Perhaps the difference is too subtle for you.
Take risks - if you win you will become wealthy, if you lose you will become wise
The state of the economy determines interest rates, but the money market (traders) don't have much influence although they can bend the curve a little. The traders are "betting" on what they think central banks might do, but central banks are NOT reacting to traders. Perhaps the difference is too subtle for you.
So did Interest Rates rise because the Fed raised rates recently.......
So did Interest Rates rise because the Fed raised rates recently.......
No, you are getting confused between the rate the RBA sets and the term rates that our banks borrow at on overseas markets.
Our RBA sets the overnight cash rate independently of anything other than the shape of our economy. Long term rates overseas are affected by other issues.
The majority of borrowers in Australia use variable rate loans, so they are affected by the RBA settings, and only marginally by overseas rates. that's why at times you might see long term rates moving in one direction while the variable rate is moving in the opposite direction.
If anything, when long term rates overseas move up, it does force the RBA to consider a downward adjustment here to compensate, unless the RBA is happy to see rates rise.
That's right they have exposures to Capital Markets overseas.
Does the RBA control rates in overseas Capital markets?
The RBA settings matter far more than overseas rates. If term rates are higher than the variable rate, borrowers won't fix their loans, they will keep them variable. In my experience most borrowers who choose fixed terms do so because they are lower than the variable rate.
Almost no one uses the 5 year fixed rate. The popular fixed terms are 2 and 3 years, which are now moving to near the variable rate, so not much change for borrowers in this rate variation. Note that the 2 and 3 year fixed rates moved up by 0.24% to 0.25% not 0.60% as you claim, that was only the 5 year rate.
If the Trump effect on the markets prove to be short lived, this will all reverse quite quickly, which won't make much difference, it's not a big movement.
The RBA settings matter far more than overseas rates. If term rates are higher than the variable rate, borrowers won't fix their loans, they will keep them variable. In my experience most borrowers who choose fixed terms do so because they are lower than the variable rate.
Almost no one uses the 5 year fixed rate. The popular fixed terms are 2 and 3 years, which are now moving to near the variable rate, so not much change for borrowers in this rate variation. Note that the 2 and 3 year fixed rates moved up by 0.24% to 0.25% not 0.60% as you claim, that was only the 5 year rate.
If the Trump effect on the markets prove to be short lived, this will all reverse quite quickly, which won't make much difference, it's not a big movement.
Moreover, looking at Charts 1 and 2, it is evident while spreads are increasing globally, they are increasing more for Australian issuers. That is, investors are asking a higher price for Australian risk.
Why are international investors demanding greater credit spreads from the major banks? In short, it’s because they can – international investors are well aware of the dependence of the banks on international debt markets to meet the funding requirement of their loan books.
As a result, international investors are the price setters for the banks’ wholesale funding. Arbitrage will ensure the cost of domestic wholesale funding is closely aligned.
While Australia’s major banks are dependent on international bond markets for term debt funding, international investors are not dependent on Australia’s major banks for investment opportunities.
Who would have thought that the "Market"(Investors) would be the price setters............
Oh wait then there's this:
Quote:
One factor that international investors do focus on, almost to the point of obsession, is the residential house price ‘bubble’. Should a ‘bubble’ (if indeed it exists) burst there will be obvious implications for the banks’ cost of debt.
LOL.......So the Cost of funding will rise when the market crashes.
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