When interest rates rise..

[Carnage]

Even if u add 1 more year to Shiny Things date range, the indices still rose a fair bit from 2005 to 2008.

 

[hindsight]

Even if u add 1 more year to Shiny Things date range, the indices still rose a fair bit from 2005 to 2008.

1 more year... we are in the 6th year of the bull market buddy... though I don't actually think the length of a bull market has to do with anything. I'm more concerned about valuations, US stocks are not cheap by most metrics i.e price to sales, CAPE, and this is after accounting for the crazy earnings distortion from ZIRP.

FWIW I don't think the fed can afford to hike rates, even if they do it will be no more than a 50bps increase over the next 3 years. Nobody, not govts in the western world, not businesses can tolerate substantially higher interest rates, and it will be that way for a very long time.

 

[hindsight]

Stocks tank, bonds get the bid.

Rising interest rates? Fat hopes brudder.

 

[Shiny Things]

FWIW I don't think the fed can afford to hike rates, even if they do it will be no more than a 50bps increase over the next 3 years. Nobody, not govts in the western world, not businesses can tolerate substantially higher interest rates, and it will be that way for a very long time.

Money where your mouth is: I'll take the other side of that bet, Captain Hindsight.

I'll show you 40% odds for the Fed Funds target rate being 0.5% or below at the end of 2016. You pay me $40 now, and if your bet pans out I'll pay you $100. 2.5 times your money if you're right, name your amount; and all you have to do is say "you're done".

 

[hindsight]

Money where your mouth is: I'll take the other side of that bet, Captain Hindsight.

I'll show you 40% odds for the Fed Funds target rate being 0.5% or below at the end of 2016. You pay me $40 now, and if your bet pans out I'll pay you $100. 2.5 times your money if you're right, name your amount; and all you have to do is say "you're done".

Nice try at gulling me but no thanks since I can get a much better deal in the market now, yes I know markets are pricing in a 1.7%ish FF rate by the end of 2016, but the market did that 2 years ago too (1%ish forecast) and it was wrong.

Btw current FF rate isn't zero, its 0-0.25%, so I expect it to be between 0.5-0.75%, not 0.5%, of course thats still far below the consensus market forecast now.

 

[Shiny Things]

Nice try at gulling me but no thanks since I can get a much better deal in the market now,

Show me.

yes I know markets are pricing in a 1.7%ish FF rate by the end of 2016, but the market did that 2 years ago too (1%ish forecast) and it was wrong.

OK, fine. If you don't want to take my bet, go and buy Fed Funds futures outright.

FFZ6 is 98.285 offered right now. If you're right, and rates are 0.75% when that puppy goes out, you're going to make about four grand per contract.

Btw current FF rate isn't zero, its 0-0.25%, so I expect it to be between 0.5-0.75%, not 0.5%, of course thats still far below the consensus market forecast now.

So... what do you want me to make a price on? Below 0.75%? For that one I'm 42 offered.

Here's the deal. I'm 40 offered for "0.5 or below", and 42 offered for "0.75 or below". If you really think that's a bad price, then show me a bid against those offers. Don't just run off and squeal "oh I totally believe my forecast but I'm not going to put my money where my mouth is".

 

[wahkao3]

i think interest rates should go up. how can stay so low for so long? easy credit has to stop before bubbles build up

 

[hindsight]

Show me.



OK, fine. If you don't want to take my bet, go and buy Fed Funds futures outright.

FFZ6 is 98.285 offered right now. If you're right, and rates are 0.75% when that puppy goes out, you're going to make about four grand per contract.



So... what do you want me to make a price on? Below 0.75%? For that one I'm 42 offered.

Here's the deal. I'm 40 offered for "0.5 or below", and 42 offered for "0.75 or below". If you really think that's a bad price, then show me a bid against those offers. Don't just run off and squeal "oh I totally believe my forecast but I'm not going to put my money where my mouth is".

There are many ways to bet on interest rates, I don't take long term trades with FF futures/options because it involves FX risk (which is a hassle to hedge against) and the gains are miniscule. I prefer to just buy ZB whenever there is a selloff, and my stock portfolio is utilities/sreits centric so they'd definitely suffer if interest rates should spike. So you see I put my money where my mouth is.

I actually wrote about this on another thread when 10s were trading near 3% a few months ago, I said the market is irrational about this and interest rates aren't going to spike, and true enough the FED shifted goalposts again recently. The 6.5% unemployment threshold is gone and the stars must now align before they will hike.

 

[hindsight]

i think interest rates should go up. how can stay so low for so long? easy credit has to stop before bubbles build up

The fed is trying to manage asset bubbles with "talk" and its working btw, its akin to how the ECB didn't need to do "whatever it takes" to save the EUR.

 

[Shiny Things]

There are many ways to bet on interest rates, I don't take long term trades with FF futures/options because it involves FX risk (which is a hassle to hedge against) and the gains are miniscule. I prefer to just buy ZB whenever there is a selloff,

ZB as in the 30-year bond futures?

 

[hindsight]

ZB as in the 30-year bond futures?

Yeah.

10 char.

 

[Shiny Things]

There are many ways to bet on interest rates, I don't take long term trades with FF futures/options because it involves FX risk (which is a hassle to hedge against) and the gains are miniscule. I prefer to just buy ZB whenever there is a selloff, and my stock portfolio is utilities/sreits centric so they'd definitely suffer if interest rates should spike. So you see I put my money where my mouth is.

So, couple of things.

Firstly, Fed funds futures have no more or less FX risk than 30-year bond futures; in both cases, your only FX risk is on your PnL.

More importantly, though: you're stating a view on Fed funds (which is an overnight rate), but you're saying you trade 30-year futures. Those are at opposite ends of the yield curve.

I'm saying this in the nicest possible way, mate, but you sound like you don't entirely know what you're talking about when it comes to rate futures. (You're right about the utils and REITs, though, those are rate-sensitive.)

Either way, I'm still 40 and 42 offered for my little fed funds prop bets. Show me a bid on either or both.

 

[SpeedingBullet]

 

[hindsight]

So, couple of things.

Firstly, Fed funds futures have no more or less FX risk than 30-year bond futures; in both cases, your only FX risk is on your PnL.

More importantly, though: you're stating a view on Fed funds (which is an overnight rate), but you're saying you trade 30-year futures. Those are at opposite ends of the yield curve.

I'm saying this in the nicest possible way, mate, but you sound like you don't entirely know what you're talking about when it comes to rate futures. (You're right about the utils and REITs, though, those are rate-sensitive.)

Either way, I'm still 40 and 42 offered for my little fed funds prop bets. Show me a bid on either or both.

Wrong, wrong, wrong. My FX risk for holding a stupid trade for 2.5 years (time taken to realise the potential in the trade) in USD is way higher than trading ZB (which is typically a short term that doesn't span more than a couple of weeks), I'm not going to make jack swing trading 30 day FF futures, unless I leverage to the hilt and buy 584920567109 contracts.

Of course they are at opposite ends of the curve, but the long end is greatly affected by the short end, the long end of the curve is mostly made up of expectations of how short term rates will look in the future. What do you think will happen to ZB if the fed announced tomorrow that FF rates would be anchored at zero till the end of time? That baby would, provided the fed's credibility isn't doubted, rally and rates would crash and approach zero. But course the fed isnt going to do that because that could bring about disastrous consequences for the dollar and the bond market, given the fact that the US finances most of its deficits from overseas borrowings.

And you contract yourself by saying that ZB is at the opposite end of the curve but utilities and Sreits would be affected because they are rate sensitive, so sreits are rate sensitive but the 10/30 yr isn't? Plot Sreits and the 10/30 yr on a chart and you will see that there is extremely high correlation between the 2.

I'm not going to take any of your bets... like I said they are bad deals due to the fx risk.

 

[Z070188]

Interest rate will be kept low till next year. One person word can stabilize the market.

https://sg.finance.yahoo.com/news/asian-shares-mixed-us-report-024606027.html

 

[Shiny Things]

Look, I'm confused. How exactly is there FX risk on a Fed Funds futures trade? Assume I am dumb. Explain it to me.

I'm not going to take any of your bets... like I said they are bad deals due to the fx risk.

OK, righto, here's an alternate bet:

"You pay me $40 SGD now - if Fed Funds is 0.75% or below at the end of 2016, I'll pay you $100 SGD."

No FX risk.

 

[SpeedingBullet]

So some random data I found trawling through DBS, UOB & OCBC's annual reports (2013). I was looking for their NPLs/NPAs in particular for last year as compared to 2012..

There's definitely a slowdown, but it's not that significant. Taper talk + taper action + MAS clampdown on properties only jolted up the numbers a little, was expecting a more magnified move but our local banks have been quite prudent in their originations..

I'll let the data do the talking:

DBS:

UOB:

OCBC:

 

[SpeedingBullet]

Digging this thread up because well... September is coming and there's a 75% chance of a rate lift off by then.

Right now there's deflation in Singapore.. and if there's a rate lift off, we may experience quite a tailspin.

And as uncle Warren famously said... interest rates act like gravity on stocks (valuation).

 

[ValueInvestor]

i think either sept or dec rates will go up

GG

but market already dropped on expectation on it happening

 

[hindsight]

Digging this thread up because well... September is coming and there's a 75% chance of a rate lift off by then.

Right now there's deflation in Singapore.. and if there's a rate lift off, we may experience quite a tailspin.

And as uncle Warren famously said... interest rates act like gravity on stocks (valuation).

Its not 75%, at least the odds of that happening is not that high according to fed fund futures, currently the market has the odds of one hike by sept at slightly over 50%, and the odds of at least one hike by dec is at nearly 100%.

But I think the date of the first lift off hardly matters, what really matters is the pace of rate hikes and the ultimate trajectory. While the fed has grown more hawkish lately the yield curve has actually flattened out a lot since early 2014, way before the fed even began to hike, traders were pricing in a 2% FFR by Dec 2016 early last year, but that has now gone down to just slightly over 1% now.

10s are at 2.16% now and 30s are under 3%, since the yield curve usually flattens when the fed starts to hike, its very unlikely for FFR to move a lot higher than 2ish percent, its also not likely get there so quickly.

I don't think such a small and gradual increase in IR is going to impact our economy that badly.