There appears to remain some confusion in financial markets as to the direction of interest rates, with a lot of mortgage products being withdrawn over recent days as financial institutions reappraise the likely direction of longer-term interest rates.
But, I wonder if things are quite as bad as they seemed last week? This chart from the FT shows the rate on ten year gilts over the last week or so:
As is apparent, rates are now falling. The rather silly panic that set in about the direction of infaltion has calmed a little, and instead of rates still going upwards, as expectation of further significant Bank of England rate rises would suggest likely, they are heading downward again.
Is that crisis over? I do not know. But what seems clear to me is that markets do not seem to think that the case for much higher rates has really been made. It's a conclusion I can agree with.
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If high interest rates are unsustainable, and they are, the won’t be sustained.Rates will move lower.
Richard,
The market shows that interest rates are expected to rise further this year before falling thereafter, which explains the pattern that you see in your chart.
This is really basic stuff!
That does not explain the pattern after the peak
Yields are falling fast this morning
I suggest you need to get your basics right
This a graph of historical 10-year gilt yields.
For some time it has been clear that the Bank of England is expected to make further rate rises this year, but thereafter rates are expected to fall, as inflation is also expected to fall.
In the last week, a greater probability has been attached to those rate cuts arriving sooner.
Most of this is general market noise and not significant – rates are still well above the levels seen just one week ago.
But they are now going down – which was the only point I made
Try looking at the forecast for 1 year rates or 3 years rates and then you’ll see.
I am looking at behaviour that suggests that the forecasts do not make sense
My question why should we (the UK) even care about the markets? Why do we issue bonds with guarantees, pay interest on those bonds and then fret about what the market thinks of us?
It seems like we are ‘the markets’ little bitch and that’s surely the wrong way round.
You are right
Or rather it’s the case the UK is attempting to appear as such and the point of that would be to try to restore the status quo pre-covid which was forever shattered by the open admission of how Covid funding was being raised, by DMF ie the BofE raising money from nowhere to buy gilts, themselves created from nowhere, direct from the Treasury. In other words, it was made blatantly obvious the govt can and does create its own currency as needed to pay for what’s needed, and that austerity was, is, and will only ever be a scam.
‘We’ ‘fret’ about the markets as they are the ones that will need to buy all the bonds we need to sell in future.
We need never sell a bond
But they are desperate for a safe place to save
You should give up trolling and understand economics instead
Harsh on previous posters, Richard. Platman has a valid point.
10Y yields re not telling us what is about to happen (or what the market expects to happen) re base rates.
Market expectations are still showing 100bp to come. This would bring the base rate to the levels that the BoE stated back in June 2022 where HH debt vulnerability becomes an issue.
Whether this is the right policy or not is another matter altogether…
And I am saying that the movement is not consistent with what you are claiming
It’s really not hard to work out
Have you looked at what happened today?
Yes including this mornings headlines on Bloomberg and other market feeds.
We can see what markets are pricing – as you say it’s not hard – and it’s now 5.5%
It’s important to look in the correct place and not to simply shut those who are trying the help down.
And I am saying a) you’re trilling (odd there is no evidence in yotr argument and b) you’re wasting my time
Also, this is your fifth identity in a month, at least
Today’s Fed speak suggest they are ready to pause raising rates from June.