It’s hard to write about this subject, but bonds is something that cannot be left out of the equation. i have been pondering for some time what part bonds play in interest rate movements. Does the bond yield lead or trail interest rates? Lets explore that.
The Federal Open Market Committee (FOMC) has kept the federal funds rate at 2.0% – news that is not news since it was widely anticipated. What is more important to note perhaps, is that “in its statement, the Fed gave no sign that it plans to change policy in the foreseeable future.”
Excerpts from news sources
Found another article explaining Interbank Interest Rate Determination in Singapore. Published in 1999 by the Monetary Authority of Singapore (MAS), it stipulates that
Only changes in US interest rates or market expectations of future movements in the exchange rate have a significant impact on the domestic interbank rate.
One step forward in my quest on what moves interest rates – interest rate parity. Simply put, this theory states that
the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.
Since we are often told that SIBOR tracks the Fed Funds rate, i decided to get down to prove this to myself. Here’s the comparison chart.
Since fixed rate home loan rates are rarely published online, i decided to do a survey in person. I went to a bank i have been to five months back and found out that indeed the 1 year fixed rate package is now at 3.68% as reported. The last time i was there it was 2.68%, a whopping 1% increase!
The fixed rate package scheme is a tricky business for banks. Banks will have to make a good guess as to what interest rates will be like in 2 or 3 years’ time.
Every home owner who cares about how much monthly installment and interest they pay should be interested to know, what moves interest rates? Specifically, what determines the home loan rates here in Singapore? It is often said in news articles that Singapore rates track the United States Federal Reserve rate. That almost seem like too easy an answer. Fine. The obvious question to ask next – so what moves the Federal Reserve rate?
SOR has fallen consecutively for 3 days to a new low of 1.09%!
SIBOR or SOR pegged loan packages may be drawing more interest now that there are no more cheap mortgages as banks raise rates. Quoting from the Jun 12 article:
No more cheap mortgages as banks raise rates UOB and OCBC Bank have raised rates for their three-year, fixed-rate mortgages to 3.68 per cent from 2.98 per cent.
