Interest Rates

[jporteous]

AndyB - I thought Tony's newsletter of 19 March was pretty explicit, "FIX NOW." He explained using a mix of 3, 5 and 7 year terms to give flexibility, but was pretty clear that "now" was the time to jump off floating and onto fix due to a combination of factors that had changed in the preceding weeks. Prior to that letter he had been waiting for a fixed rate below 6%, which he then acknowledged wasn't going to happen.

Credit where credit's due I think.

CT

Hi

I look forward to Tony's weekly newsletters as I find them reasonably informative. However, in regards to the "Fix Now" I think he was actually 1-2 weeks late. From memory Tony's newsletter was still suggesting holding out for lower 5 year rates but ASB went early and lifted their rates. By the time he updated his newsletter the first round of lifts had occurred. So to get the "lowest" rate you had to preempt his update. In saying that I believe that correctly guessing the change in interest rate is more done to luck . I am guessing but I would think it would be next to impossible to accurately predict.

Jono

[CycleTrader]

Yes, he may well have been a touch late though as a BNZ customer I'm pretty sure his call still came before their rates increased. Unfortunately I was stuck on an old fixed rate til late June and therefore missed the best window. Managed to get a piece of the fixed rate at 7.5% before it headed up intop the 8's. Time will tell if that was a good move.

CT

[AndyB]

Well, that's what I wanted to see, some evidence that he is being reputable saying that he called it.
I don't remember that one, perhaps as I had already fixed the rates. Using advice/suggestions garnered from you guys on this website.
I did read this T.A one: "Lower interest rates have contributed to an improvement in sentiment," which made me wonder if interest rates would stay low, and which also seemed as a bit of a suggestion.

http://www.bnz.co.nz/binaries/cs100309.pdf

Credit due though. If the newsletter was that explicit, as you quote, then good one.

[PC]

Why are NZs interest rates higher than other countries?
If you default on a mortgage in NZ the banks can persue you for all assets. In the US - send them back the keys and that's it.

Surely lending is riskier in the US?
So why are loans more expensive in NZ?

[mortgage broker]

We have a lot of volcanoes here.

[PC]

True!

Since we're paying a 2% premium for our loans it's about time we got
better terms!
We've been fed the line that NZ is riskier than other countries - complete B.S.

[ecoeco]

Loans are more expensive here because the market will pay it and competition is limited. Why discount your rate if your competitors aren't and you are getting lots of business?

NZ being risker is a weak argument in my opnion - but it is enough for a sound bite and most people to say "oh ok" and nod wisely.

[brendan]

Could it be that loans are more expensive here because the lender actually takes the risk, where as in the US with securitization, the lender was onselling the loan and not taking any risk.

[ecoeco]

I thought that the NZ banks were now securitising loans - ie:

http://in.reuters.com/article/asiaCompanyAndMarkets/idINSYD28072320081003

But have much tighter lending criteria (unlike the US where all you needed was a pulse). If our bank's loan books are better managed and have low risk in general then rates should be lower not higher.

Another argument is the size of the NZ economy and our reliance on exports that could be wiped out by foot'n'mouth or a similar epidemic - but this applies about equally to Oz and makes it harder to justify an interest rate premium.

At some point it actually makes more sense to move your funds to oz, borrow against property there to purchase in NZ.

[jporteous]

Could A W Recovery Drop Long-Term Rates?

Hi

Everything i have read to data is indicating long-term interest rates are continuing to rise. From what I can gather one of the big drivers is that investors are demanding higher yields for deposits. Especially when there is a number of "green shoots" in the economy providing attractive investment alternatives.

However, if the "green shoots" prove unsustainable and the economy takes another hit could long-term interest rates drop as investors seek security?

Question comes from a CNBC article & interview http://www.cnbc.com/id/32551478 which suggests that the "green shots" in the US are driven by government stimulus (e.g. cash for clunkers) and not by "real & sustainable" customer demand. Once the stimulus finishes so does the demand. The interview also suggests that the media has also taken a "positive spin" of comments from the Fed e.g. Fed states the decline in GDP etc is plateauing = media take this as a recovery & lift in GDP.

Jono

[muppet]

investors are demanding higher yields for deposits

True.
And especially after ING have just paid out $398m to about 13000 investors who are getting 8% from the ANZ.

So that money will be lent out to some property investors at some high rate of interest.

[tpr2]

Remember also that the RB have insisted that the NZ banks source a far larger percentage of their lending from depositors which means they need to attract that money by offering higher term deposit rates.

[essence]

ASB cuts mortgage rate to 40-year low

04/09/2009

ASB is cutting its floating home mortgage rate by 0.65 percent to 5.75 percent and is increasing many of its fixed mortgage rates.

The floating rate is the bank's lowest floating rate in more than 40 years.

The overhaul of the bank's rates comes ahead of the Reserve Bank of New Zealand's monetary policy statement next week.

ASB economists this week predicted the central bank will cut its official cash rate by 25 basis points but freely acknowledged that market pricing implied only a 10 percent chance of it happening.

Most economists expected the official cash rate to be unchanged at 2.5 percent.

http://www.stuff.co.nz/business/industries/2836028/ASB-cuts-mortgage-rate-to-40-year-low

Its 12 month, 18 month and two-year fixed rates have increased by 0.2 percent to 5.7 percent, 6.3 percent and 6.75 percent.

Check out the current rates here.

[Viking]

And more to come. World money is starting to look for a safe home. China is shifting gold to HK from London and doesn't want more US treasury paper. Becoming a risk so probable NZ interest rates will fall.

[drelly]

Viking ... on the contrary... NZ interest rates will have to rise to attract overseas funds.