ECB rate to peak at 4%?

Considering recent data re MP3 growth, the IFO index, German unemployment down, EU sentiment up, etc, do people agree with this finding by the ‘ESRIs’ of the EU member states?

My view is that global liquidity will contiinue to tighten, and having benefited from excess liquidity Ireland & Spain are now very vulnerable as central economies in the eurozone start to grow. Even if interest rates drop now all it will do is slow down the rate of descent and we end up with a situation like Japan were it took 16 years to bottom out, instead of the expected 5 to 7 years. How much money can we really pump into construction?

How much you got!



For those who have contributed to this so far - thanks. However, any chance of keeping the discussion to interest rates and how posters see movements over the coming year(s)? Thanks

The Americans will probably cut and attempt to inflate their way out of trouble.

The ECB will keep rising. The €/$ rate isn’t as important as Anglocentric commentators like to think. 4.25% by Autumn, 4.75% by this time next year. They won’t go below 4% for the next 20 years: the ECB has learned from the mistake of 2001 and being panicked into following the Americans into real-negative territory. That will never happen again.

The BoJ have, I think, finally copped on that ultra-low rates were actually contributing to deflation and will be trying to get political approval to head back to 3% odds as soon as possible.

Personally I think that low IR’s have been seen to be ineffective as a stimulus to real growth (a la Germany and Japan) but have had the unfortunate side effect of causing crazy imaginary growth (Spain, Ireland since 01, US since dot com crash) and so will simply not be considered in the future. I reckon they will end up being around 4.75% which is the long term (since 1948) average of the Deutsche Bundesbank discount rate.

EDIT : They might bump them up higher in the short term to try and get a handle on M3 but when that ultimately fails as the miracle of modern finance no longer heeds CB IR’s they will implement some more direct form of control on money supply and rates will neutralise once again.

30yr european bond rates are 4.22% . This is markets best estimate of long term rates. Highly speculative to think rates will be much higher or lower than this over next 30 years. 10year rates are around 4% so mortgage rates are unlikley to be much under the 5% mark for next decade, this alone is enough to seriously affect the Irish property market.

Good point. How long have the 30 year been trading around 4%?

Also out of interest how come the 20 years coupon price was 6.5%? Seems like an anomly and how come the 30year don’t mature for anothyer 32 years (or am i reading the tables wrong?)

No 20 yrs are yielding 4.25%. You are looking at nominal coupon/yield

2-Year 3.750 03/13/2009 99.51 / 4.02 0 / 0 03/30
3-Year 3.250 04/09/2010 97.87 / 4.01 -0 / 0.001 03/30
4-Year 3.500 04/08/2011 98.11 / 4.02 -0 / 0.001 03/30
5-Year 4.000 04/13/2012 99.92 / 4.02 -0 / -0 03/30
6-Year 4.500 01/04/2013 102.34 / 4.03 -0 / -0 03/30
7-Year 4.250 01/04/2014 101.19 / 4.04 0 / -0 03/30
8-Year 3.750 01/04/2015 98.08 / 4.04 0 / 0 03/30
9-Year 3.500 01/04/2016 96.12 / 4.03 -0 / 0 03/30
10-Year 3.750 01/04/2017 97.54 / 4.06 -0 / 0 03/30
20-Year 6.500 07/04/2027 130.11 / 4.25 0 / -0 03/30
30-Year 4.250 07/04/2039 100.4 / 4.22

That’s what I said, “how come the 20 years *coupon *price *was *6.5%?”

I am still interested in why they were priced so high? Aslo any idea on how long the 30year were trading at ~4%?

UK rate at 5.25 and expected to move to 5.5 in May - why therefore should ECB rates not reach say 5 (within the next 12/18 months) - Bloomberg (according to Duplex on another issue) expect a further THREE increases by the ECB in 2007 - to 4.5.

Why stop there? Any reason why we can’t go towards 8% like New Zealand? - Absolutely none.