Interest Rates globally are changing at the fastest pace ever

Interest Rates globally are changing (in both directions) at the fastest pace ever in the history of the modern central banking system. Nearly half of the countries in the world have cut interest rates while the other half have hiked them in the past 6 months. The average change for countries with a change in interest rate has been +0.22% in the past 6 months. Take Argentina and Turkey out and the average (global) interest rate has actually fallen.

Interest Rates 20180818
Data Source: Central Banks Globally

 

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The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing

Interest Rates

What a difference a year makes. The Federal Reserve has hiked interest rates thrice (in December, March and June) with a target rate range of 1.75% to 2% now. The Eurozone meanwhile maintains its zero-interest rate policy.

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50 countries have seen a change to their interest rate in the past three months, with exactly half each seeing an increase and half seeing a decrease

Are interest rates rising or falling globally? Well, if the past three months are anything to go by then the world is moving in different directions with regards to interest rates. So much for synchronized increases or decreases in interest rates …

Here is a map of changes,

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Weekly Overview: Investors seek safety as bond yields fall; Crude Oil down 5%; Baltic Dry Index down 15%; Bank of England Governor prepared to cut or freeze interest rates; US E-Commerce Retail sales soaring

Investors seek safety

What a difference a week makes, just last week everyone was talking about soaring bond yields. Investors are now seeking safety with developed economies bond yields falling significantly during the week.

Here are some 10-year bond yields, figures in brackets indicate change during the week.

US 2.93% (-15 bps)
UK 1.32% (-21 bps)
Germany 0.41% (-17 bps)
Canada 2.35% (-14 bps)
Switzerland 0.00% (-13 bps)
Netherlands 0.59%% (-15 bps)
Australia 2.79% (-13 bps) Continue reading “Weekly Overview: Investors seek safety as bond yields fall; Crude Oil down 5%; Baltic Dry Index down 15%; Bank of England Governor prepared to cut or freeze interest rates; US E-Commerce Retail sales soaring”

Can the UK Government afford higher interest rates or rising bond yields?

We recently wrote about the impact of rising interest rates for UK households, read more about it here. We also wrote about the impact of higher bond yields for the US government, read more about it here.

Impact of higher interest rates for the UK Government

The UK government has around £1.72 trillion in debt and pays around £36 billion in interest payments a year (an effective interest rate of 2%).

The UK tax revenues are around £800 billion a year, which would mean 4.5% of all tax revenues are paid as interest. The UK has paid £540 billion in interest since it last ran a surplus in 2001.

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Weekly Overview: UK interest rate hike expectations; Argentina hikes interest rate to 40%; LIBOR OIS; US Money Supply growth accelerating again; Bank of Canada and Bank of England speeches

UK interest rate hike expectations

The Monetary Policy Committee of the Bank of England meets on Thursday, May 10 to decide the direction of interest rates.

Following a weak UK Q1 2018 GDP growth of only 0.1%, the slowest since Q4 2012 (read here) and inflation falling from 2.7% in February to 2.5% in March (against a Bank of England target of 2%), the market is now pricing in a 17% of a rate rise in May. The market had factored in a 100% chance of a hike just a few weeks ago.

UK 10-year bond yields fell 5bps during the week. The 10-year bond now yields 1.4% (up 0.32% over the past year)

Continue reading “Weekly Overview: UK interest rate hike expectations; Argentina hikes interest rate to 40%; LIBOR OIS; US Money Supply growth accelerating again; Bank of Canada and Bank of England speeches”