Interest rates in 3 to 5 years time.

Can I have opinions on where interest rates might be in 3 to 5 years time

I think probably higher than today, but that’s just because they will be getting nervous about inflation after a few years of super low rates.

Japan hit ZIRP in 1999 and is still there a decade later.

It’s unclear to me how you can ever get out of ZIRP once you’ve been there for a while.

Unless you are disciplined enough to adopt incredibly conservative lending policies during ZIRP, then any attempt to return monetary policy to “normality” will quickly bankrupt everyone who borrowed during ZIRP - causing a glut of bad debt, distressed assets & asset price collapse.

In my view the current GFC was caused by Alan Greenspan’s moronic flirtation with ZIRP post 2001 accompanied as it was by an unbridled bout of insane lending by overpaid short sighted idiot bankers. When the Fed attempted to normalise interest rates in 2007 their economy collapsed and now they’re forced right back into ZIRP again.

Doubling of ECB interest rates from 1% to 2% between Dec 2005 and Aug 2006 was enough to pop the Irish property bubble, long before the “credit crunch” that Fianna Fail & the rest rely so heavily on now to explain away their incompetence & economic muppetry.

My prediction …
ECB to cut twice more by 0.25% each time to reach 0.50% over the next 2-4 months. It will stay at 0.50% for 12-18 months.

I would guess about 1.5% in 3 years time.

At 5yrs? 2014 hmm?? Waaaaay substantially higher. Why? Cos no one thinks about 5yrs from now, 5yrs is an eternity. Just print shed loads of paper, bail out everything in sight, worry about the consequences later. And boy will there be consequences. I bought my first Krugger in 2003, just bought some Maples last Monday (carefull, 99.99% pure, v soft and they scratch!). Hoepfully I’ll be selling my entire stash when rates hit late-70s levels, yeah, 5yrs sounds about right

Just to be clear. I couldnt care less what the ECB/Fed et al do with their rates. I’m taking real world rates, 10yr bonds, corporates etc. Rates quoted to borrow to buy real things in the real world. Anything over 30-day govt funny money is going, comparatively, to the moon

Well as far as I know the ECB has a target rate of just under 2% by a margin of as much as makes no difference.
If we take into account the banks (whichever ones are left) will be limping along trying to rebuild their balance sheets and with variable interest rates then they will have carte blanche and be charging as much as they can so I would expect rates in excess of 5% as a minimum.

Once you’ve let the debt monkeys off the hook with zero interest rates it then makes no sense to raise them does it?

Rates once brought to zero are very difficult to raise again,since every loan borrowed at those rates(and all those during the bubble) would soon go bad if rates were to return to normal levels,so like weening a heroin addict off heroin when do they eventually pull it?When inflation has ensured that the loans can be paid back once rates are increased that’s when.

Expect lots of lovely inflation,cannies win again I’m afraid.

1% rates for the next 5 years in my view ,house prices to drift lower very slowly.No more big falls.

Disagree with the first point. Cannies won’t win - everyone will lose (unless you’re sitting on a pile of cash).

Agree with the second though. We’re not going to get a recovery anytime soon. When one eventually comes, it’s going to be slow and very weak. With Germany now tanking, I think we’ll see Eurozone rates at 0.5% by the end of the year.

ECB posted rates will be IMMATERIAL when month over month purchasing power loss kicks in in earnest. And this insidious process will be well underway by 2014, I’d say starting 18mths from now more like it. You think TODAY is a crisis? We aint seen nothing. And it’ll be time to sell ones gold, for multiples of what it is today (and buy property most likely). If you have debt, fix it and/or get rid of it. Yep, the real pole-axing of property prices is still to come…

5 years is a long time in global finance and allot of things could happen but my bet is on 4-6% interest rates for interbank lending, liekely 8% for the 30 yr. fixed mortgage in the US. Inflation should be up and running at a nice clip (5% or so) by then so real rates will not be much different to now assuming earnings adjust with inflation, which they won’t.
WHY? - I expect that within 2-3 years the Chinese will fully understand that they are propping up a pyramid and that their debtors have limited capacity to pay, internal strife will cause price inflation in China and result in inflation of goods, which will also be pressured higher by commodity prices. There will be even less capital available worldwide as the true nature of the losses of the fallacy of the past 20 years come home to roost and credit availability will play it’s part in determining rates as opposed to today.
Hyper-inflation unlikely but not out of the question as the US tries to inflate it’s way to lowering debt bringing the global credit markets with it. Increased social spending worldwide won’t help and national debts could return to averages of 6-9% across the EU. Some countries will deflate their currencies to become more “competitive” driving up inflation levels locally also.

On the good side, the huge losses will be worked off, excess capacities worked down, and prudent economies will benefit long term, meanwhile it will be a rough ride. :frowning:

Terse and to the point.

What happened to the laughs though. I used to like the laughs.

Your prognosis is spot on. However, I believe our ECB is (Jesus H am I saying this) are clever. I believe they will monitor closely the events and raise rates before a dependency develops.
I’m out of touch now so maybe these guys are not too acurate.

Anyway the market is calling 5 years rate @ 2%.
:open_mouth: I see 5 year rates at 7% or thereabouts.

My “guess” is in 5 years the ECB/10yr Bunds will be at or close to double digits. In 7 years above 10%. In 3 years, say 5%+.

An uncommon opinion!

When the Berlin Wall fell 20 years ago this autumn Bunds were yielding circa 13% (I could be wrong as my 20 year memory can be fuzzy). Markets move in ranges, big ranges, my favourite is GBP/USD its range is £1=$1 to £1=$2 with loads of noise in between. Both ends of the range have been achieved. I expect the same to happen to interest rates. We are at the lower end of the range between 0-1%, and in my life time I’ve seen 10%+, it will be seen again, but when? We are close to the natural end to 20 years of reductions in interest rates (not in a straight line :slight_smile: ).

Are the ECB/Bundersbank going to print money like every other Central Bank? On page 6 of Friday’s FT (can’t find link) there is an article called **ECB favours using monetary policy as asset-price tool**

The 2nd paragraph says
`A policy of “leaning against the wind” - raising interest rates earlier than would otherwise be the case when asset prices are booming - was given backing yesterday by Lucas Papademos, the ECB’s vice-president.

What are the assets referred to? Real Estate, Equities, Bonds or Commodities? While I am not a big fan of Peek Oil, I could see “Oil Supply Disruption” happening. The Arabs may notice they are selling a can’t-do-without-product at a 1970s price and ask for a 30 year payrise all in one go. In the West we’ll be able to survive, but the baby sweetcorn and fresh flowers flown in from Kenya may not last. Third world farmers may not be able to afford to use oil for the production of crops both domestic and cash crops leading to lower yields thus higher prices. This is where inflation at the margins will seep into Europe.
Just an idea as to where the ECB will gain the impetus to raise rates.

It is increasingly obvious that bond markets dictate rates to national govts. With lousy western demographics and the attendant decrease in tax revenues I’d expect rates to rise as bond markets price in more risk.

History shows us though that idiot central banks will try to cut rates to ‘strengthen’ any upturn with inevitably disastrous consequences. So it could be as low as 4%.

The current situation is an aberration; although others have pointed out that its difficult to raise from ZIRP.

Hard to know really but I’ll play it safe and assume a long term medium of 5-8%.
So, depending on the strength of any recovery, about 6.5%.

Too ture…
For the last few decades we have reaped the deflationary benefits China/India have provided us on almost every consumer good. Inflation numbers stayed low, and became more and more irrelevant as other assets which are not really reflected in the numbers, like housing, took off instead.
As other goods became cheaper we were able to apply more of our dispoable income to housing, to the point where housing comsumes most of our after tax income versus energy/food which did 20 years ago.
However, aside from the gross imbalances that have resulted from this mutually benficial relationship, there is a bigger force at work…

The Chinese will start to consume, they are migrating slowly into our lifestyle. As another 1-2bln people start competing with us for the worlds resources and as they start demending better wages to pay for that iPod upgrade etc, the price we pay for everyday goods will start to rise.

The years of having 1-2billion people subsidise the cost of goods for us, allowing us to allocate more and more of our wages to hosuing are coming to an end.
As prices of everyday items rise we will have to cut back on our housing allocation…

As for wages, we can already see the effects of a growing service sector in India…Overtime, more and more jobs will get sucked out, putting pressure on our own wages

China / India will not be slaves to our lifestyle for much longer!

Interest rates per AIB fxcentre

Term EUR
One Year 1.6
Three Year 2.06
Five Year 2.7

With all the money being printed by the fed, ECB and BoE expect superinflation to occur in the next few years. To control this inflation, interest rates will have to go up. Double digit interest rates around the corner.

Does it really matter what the ECB base rate will be – nope.

Its the credit spreads, liquidty spreads and those damm pesky market risk spreads that you want to be more concerned with.

I guess one could derive an estimate of what we think currently the 5yr rate in 5 yrs time will be by looking at the yield differential between the current 5yr bond and the curretn 5 yr bond.

Make a decision on what is the best proxy. The bun would be a bad choice due to the spread premia it is now carrying due to its perception as a locale of safe haven.

Moi, i would probably use the Italian bond,
5yr @ 3.154%
10yr @ 4.334%

now calc the forward rate…

My guess is that fwd rates are unserstated and i expect expectations of the 5yr rate in 2014 to rise as prudency returns to the markets.