SOR just broke through the previous recorded low of 0.68% set on 27 Nov 2008 to hit 0.67% on 27 May 2008, exactly half a year later. One of the driving factors for this is of course is the diving Libor, which happens to be hovering at a range (0.66-0.68%) similar to SOR. The fall in Libor itself may be attributed to cash infusion from the Fed and overall reduced risk aversion.
Meanwhile, the ten year treasury yield continues on an upward trend due to the US borrowing spree, though this is expected to be kept in check by a protracted exit from the recession and falling inflation. The treasury yield and Libor are somewhat linked, with the treasury yield leading, though this is not a strong correlation.
Here is what an analyst has to say about the dollar, treasuries and US government credit rating. Basically, the US dollar is already falling, and we have already seen that treasuries are also on the decline, sending yields higher. Lower confidence in the US government’s ability to repay debt will send interest rates higher as people seek higher returns for taking up more risk. Iceland is the classic example.
Coming back to interest rates in Singapore, it’s interesting to note that SOR has once again fallen to the same level as SIBOR, which is relatively rare. At this level, my home loan rate would be 1.45%, just slightly higher than those who took up the home loan that is pegged to the one month SIBOR, at 1.3%.
