MAS has just announced it will “increase the slope of its policy band slightly for a modest and gradual appreciation of the Singapore dollar”. Two days before the announcement, the USD/SGD rate already started to decline from the recent high of 1.26. This bodes well for home loan rates, where SOR has already fallen below Sibor for 3 weeks. Given the Fed’s apparent commitment to keep rates low through 2014, which is actually just a forecast and not set in stone, it appears that interest rates will probably remain subdued for a while at least. Meanwhile, despite repeated attempts to suppress oil price, it managed to stay above US$102. This could be a sign of QE3?
SOR rises above 0.5% for the first time since June 2010, as the USD/SGD moves close to 1.3 again and LIBOR hit 0.54% on its continued steep incline, while SIBOR remains muted at 0.38%. The massive flight-to-safety from the Eurozone’s trouble pushes the US dollar higher as investors piled into Treasuries. This, the result of ECB’s stubborn unwillingness to print money, though, as widely expected, they did further cut rates by another quarter points to 1%.
The 3-Month SIBOR has dropped a notch from 0.44% to 0.31%, bringing it lower than SOR once again. SIBOR-pegged loans are now more attractive than SOR-pegged ones. This is also partly due to the absence of SOR-pegged loans currently being offered. Banks probably withdrew them after being spooked by the negative SOR back in August.
The last time SOR and SIBOR crossed path was way back in May 2009. That was when SOR fell below SIBOR and remained so for more than 2 years. The recent sharp increase in USD/SGD exchange rates (from 1.2 to 1.3 in 3 weeks) took SOR from -0.1 to 0.35 over the same period. It looks like MAS has kept the USD/SGD rate bounded at 1.3 for now, so SOR will likely stabilise, although it is to be noted that LIBOR has been on an increasing trend.
This just in, my other SIBOR pegged home loan has dropped by about 0.09%, corresponding to the fall in the 3-month SIBOR. This again results in some savings in my monthly instalment, not a lot , but any amount is welcome.
World’s End Close, Edinburgh
The events in the past week may be telling us that we could be one step closer to the end of the world. Ok, that’s a bit of an exaggeration, but these were significant events. US just lost its AAA rating for the first time. That means a loss of confidence in the US in their ability to repay their debt, and more so, a loss of confidence in the governance of the country. This has major repercussions on the financial system, especially the currency.
With the US bent on devaluating the USD and MAS allowing the SGD to appreciate, SOR was driven into its all-time-low territory again, coming in at 0.247% on 3 Nov 2010. Moreover, the Feds initiated a fresh round of measures to spur the US economy, keeping rates at 0-0.25% for an “extended period” and launching a new massive US$600 billion money printing exercise.
News about home loan rates appear in the newspaper very sparingly, and this just happened last Saturday, showing up in the Straits Times with the headline “Cheaper home loans in store”. In a gist, the article says that “KEY interest rates that determine mortgage levels have fallen steeply, promising cheaper home loans but even leaner times for those with bank deposits. “¦ The falling rates have followed the trend of the rates set by the United States Federal Reserve, which continue to be at historic lows. They have also come as the Singdollar has been allowed to strengthen since April.”
I have mentioned in my previous post that those of us who have taken up a SOR or SIBOR pegged loan may find ourselves at risk of having to pay a 1.5% penalty when doing a full redemption not on the rate repricing date.