interest rates in the USA v other advanced economies

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Submitted by gzz on December 17, 2018 - 12:09pm

Ten Year Bond Rates

USA 2.86
Canada 2.06
Germany 0.25
UK 1.26
France 0.73
Spain 1.40
Holland 0.41
Switzerland -0.24
Japan 0.02
Australia 2.44
New Zealand 2.45
Hong Kong 2.03
South Korea 2.00

In other words, we have the highest of any major advanced economy!

While this certainly could continue to be the case, at some point I think people collecting 0.25, 1%, etc a year in other countries will decide instead to move their cash here and buy US Bonds. That will lead to... lower mortgage rates and higher RE prices!

They really should have bought our bonds years ago. They could then have not only earned higher interest rates, but could have taken advantage of the dollar's recent appreciation.

Submitted by gzz on August 14, 2019 - 10:26pm.

“Lower rates don't mean households go out and borrow immediately especially during periods of economic anxiety.”

Haha you don’t know your people very well. Americans just can’t help themselves, we are optimistic, not anxious.

“Some real estate deals are cash only. Like condos in communities witth low owner occupancy.”

The alternative investment of bonds keeps getting worse and worse. I think stocks are roughly at fair value and would guess returns over the next 5 years of about 2% appreciation and 3% dividend. Not bad, not great, and plenty of volatility.

For bonds, do you really want to lock in a 1.97% return for 30 years, and have to pay income tax on the full 1.97% every year? Not me!

The problem with the fed rate increases the past few years is banks suddenly are paying 1.5-2% on savings accounts, though you have to move the money around every year to get the promo rates. Let’s knock that down to 0 again.

Submitted by svelte on August 15, 2019 - 7:22pm.

Dec 2018 (country) Aug 2019

2.86 USA 1.59
2.06 Canada 1.10
0.25 Germany 0.71
1.26 UK 0.40
0.73 France 0.44
1.40 Spain 0.05
0.41 Holland 0.59
-0.24 Switzerland -1.12
0.02 Japan -0.25
2.44 Australia 0.88
2.45 New Zealand 0.99
2.03 Hong Kong 1.05
2.00 South Korea 1.15
---- Italy 1.34

about the same gap with the US as before, but rate is a lot lower!

Submitted by gzz on August 15, 2019 - 9:01pm.

The 2019 numbers in your chart need minus signs for Germany France Holland and UK.

Rates can only get so far below 0, you’d think, so the money flows will eventually have to go to our bond market with its juicy returns of more than 1%.

You see a little of that in the chart, the biggest rate declines are the ones that started above 2.4%.

The lowest rate in the world is on Swiss bonds maturing in 9 years at -1.17%.

I read a couple days ago that $17 trillion of world gov debt now has negative yields. Corporate bonds in Europe often have negative rates too.

Submitted by gzz on August 15, 2019 - 9:07pm.

I just checked a few rate quote sites as well as average rate data, the recent plunge in rates that started July 30 hasn’t passed through to the mortgage market yet. Maybe August sales will be weak as buyers delay closing to rate shop.

Submitted by FlyerInHi on August 17, 2019 - 1:05am.

So it makes sense that that USD is appreciating vs other currencies.

Submitted by gzz on August 18, 2019 - 10:44am.

Denmark sees its first negative mortgage rates, German mortgage average falls below 1%, France at 1.39%:

I looked up Swiss mortgage rates. Despite having the lowest overall rates, mortgage rates are about 1% on 5-10 year loans and 1.5% on 15 year. Probably because of low volume and lack of government support.

Submitted by spdrun on August 18, 2019 - 12:09pm.

The reality is more complicated...

(1) They make money on fees that raise the effective rate above zero.
(2) It's not a conventional mortgage designed for payoff at the end, but a 10-year loan -- you'll still owe most of the balance at the end. It's a redux of the "teaser rate" scam in 2006 or so.
(3) They apparently enforce 80% LTV fairly strictly, a lesson the US would do well to emulate.

Submitted by FlyerInHi on August 18, 2019 - 6:54pm.

I wonder, if I have income in Germany, can I get a loan to buy a condo?

I was told it's a pain rent out properties in Europe with rent control, permits, etc... And the rents aren't as high as in USA

Submitted by FlyerInHi on August 25, 2019 - 7:18pm.

60 Minutes Australia.
I guest the housing crash is coming to them.
I wonder if banks are allowed to go after borrower assets other than the collateral.

Submitted by gzz on August 26, 2019 - 8:39am.

Germany: high taxes, declining population, cold weather causing retirees to go south. I don’t like it as a long term real estate investment. Why not just go with upstate NY?

The NYT used to have regular articles about 2nd homes in Europe that would describe the mortgage and property tax situation at the end. I think you’d have to put about half down as a foreigner. The one time transaction costs and taxes were often very high.

Submitted by spdrun on August 26, 2019 - 11:05am.

High taxes, but they actually GET something for those taxes, not just private prisons, military "heroes" (LOL!), defense contractor parasites, and their homicide sprees abroad. Free/good educational system, world-class healthcare system, good public/rail transit system, rule of law/environmental protection. Plus, Germany is a lot prettier than upstate NY.

Germany's population is approximately stable, as other countries should strive to be. Zero population growth should be a stated goal of governments, not just an NGO catchphrase.

Submitted by FlyerInHi on August 26, 2019 - 11:34am.

Berlin has experienced growth population and RE appreciation and is attracting young people. Berlin in hip and cool with a good international crowd.

There are dying parts of Germany for sure, especially in the former East.

My old cousin lives near West Point upstate NY. Boring area. She’s the caretaker of the gravesites of the family, haha. It’s like waiting for death there.

I have to go investigate. I heard that rental regulations in Europe are onerous. I would like to Airbnb, 30 days or more if required. In USA if you Airbnb over 30 days, nobody can force you to stop (unless HOA CCRs say otherwise) And if you want to rent out your unit, you don’t need a permit. I don’t want socialist regulations limiting my property rights, haha.

Submitted by spdrun on August 26, 2019 - 11:57am.

Here's the benefit of the socialist regulations -- they reduce competition since many other people ALSO won't want to deal with them.

Submitted by FlyerInHi on August 26, 2019 - 11:57am.

I think Canadians are most active in US RE. They can visit visa free for 6 months at a time. The culture is almost the same and savvy people know how to play the currency game.

I just don’t understand why Canadians would want mobile homes in Florida as vacation homes. Sounds deplorable to me.

Submitted by FlyerInHi on August 28, 2019 - 3:35pm.

Wow, the pound sterling has not been this low since the 1980s For people who believe in Brexit, maybe it's time to buy something in the UK. .

Submitted by gzz on September 1, 2019 - 3:56pm.

London is overpriced, the rest is stagnant economy and falling population.

UK stocks may be better, but they were mostly overpriced compared to French companies when I last compared.

Submitted by gzz on September 4, 2019 - 4:34pm.

Average mortgage rates below 3.5% (3.46%) for the first time in 3+ years.

Plenty of room to fall further: delinquencies and foreclosures at 10+ year lows.

Submitted by spdrun on September 4, 2019 - 7:44pm.

If rates fall further, it will likely be because of a recession. People without jerbs can't pay their mortgages...

Submitted by gzz on September 13, 2019 - 9:02am.

Rates bounced up from multiyear lows by about .3% in the USA and other big economies. Turns out buying Swiss bonds that yield -1.1% wasn’t a great idea, who would have thought? They went down the most to -0.6.

Submitted by gzz on September 13, 2019 - 9:05am.

The rate swings over tariffs that amount to less than $100 billion a year combined on both sides is irrational.

The way to take advantage is if there’s another breakdown in talks and round of tariffs, buy the dip in stocks and sell the bond rally.

Submitted by FlyerInHi on September 15, 2019 - 10:25pm.

Negative rates coming to USA?

The idiots who predicted hyperinflation from the 2009 stimulus were so wrong. What’s worse is that their obstruction retarded the economy and caused us all loss of wealth. Of course, no apologies.

Submitted by FlyerInHi on September 23, 2019 - 12:44am.

The next step is fiscal support to work in conjunction with monetary policy.

Where are the people who predicted hyperinflation? Ron Paul, anyone? I think it was Ross Perot before that. So wrong.

Submitted by phaster on September 28, 2019 - 1:28pm.

the fed pumped a bunch more money in to keep the Repo rate down,... not too long ago it (the overnight lending for banks) spiked to 10%

consider that the US national debt goes up ONLY about a trillion a year,... seems the FED dumped in about an 1/8 of that amount OR about 142 billion (plus whatever they put in on the QT,...) to keep this key rate down

just wondering if anyone else has been paying attention to stuff like this,... (and considering the bigger picture)


The Fed’s fix of the crucial repo lending market for banks will be put to the test on Monday

The Federal Reserve has used open market operations to soothe the short-term funding market, and now its temporary fix faces a test as the third quarter ends.

The Fed has used overnight and 14-day market operations to stabilize the repo market, used by financial institutions to fund themselves on a short term basis. The Fed was reacting to a sudden spike in rates Sept. 16 and 17, and it is under pressure to permanently resolve the issue, which seems to stem from a cash crunch in the overnight borrowing market, rather than a credit crisis.

During the temporary panic in the overnight funds market, rates spiked to as high as 10%, and the Fed’s own benchmark federal funds rate briefly traded at 2.30%, 0.05 above the Fed’s target range on Sept. 17. The weighted average Treasury repo rate in the Fed’s operation was at a subdued 1.80% Friday. In the past several days, the Fed expanded its facilities, as they met high demand, but by Friday, both its $100 billion overnight repo and its $60 billion 14-day were undersubscribed.

Submitted by outtamojo on September 28, 2019 - 1:32pm.

I keep seeing this on the news too- beyond me to know if this turns out to be a missed sign or nothing at all.

Submitted by phaster on September 29, 2019 - 11:19am.

99.99% sure its not a missed sign or nothing at all

not too many are aware that,..


Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition.

it is assumed that the fed controls the money supply, BUT this only applies w/ in the USA,... so WHAT IF shadow banks outside of the USA w/ little or no regulation, initiated loans,... in other words created their own supply of "digital" Eurodollars?!

it would be akin to the left hand not knowing what the right hand of the same financial institution is doing,... if you think this isn't possible then consider the story of various divisions of Deutsche Bank loaning money to POTUS

considering the bigger picture of an over all increase of the money supply due to unregulated Eurodollars over the years,... since money seeks its best return I don't think it is too hard to imagine that off shore money eventually finds its way into the RE as well as stock market (which would bid up prices)

I'm just a basic science knucklehead that has never taken a formal economics or finance class,... but all my math background tells me at some point the figures on the balance sheet,... don't balance

AND the only reason it seems there has not been a problem thus far is because the dollar is the international medium-of-exchange/store-of-value/unit-of-account

Submitted by gzz on October 4, 2019 - 5:10pm.

Best of both worlds: unemployment drops to new low (lowest since 1969) and rates are back down to 1.51%. Latest Y over Y wage growth was a solid 2.9%

Submitted by phaster on October 5, 2019 - 8:41am.

gzz wrote:
Best of both worlds

calm before the storm???

had an invite the other day to hear what one of the NY fed officials had to say,...

John Williams
President, Federal Reserve Bank of New York
Vice Chairman, FOMC (@ucsd)

FWIW at the table I sat at,... sensed there was not such a warm and fuzzy feeling given recent news and the discussion of the inverted yield curve and unexpected spike of the Repo rate

looking at the bigger picture there is the ever growing unsustainable off balance sheet debt which is fractal in nature,... meaning debt obligations are happening at the local level

as well as at the state AND national levels

so while the nation is being distracted w/ various political POTUS shenanigans,... there is a storm brewing on the horizon that few are paying attention to


PBGC Projections: Multiemployer Program Insolvent in FY 2025
May 31, 2018

WASHINGTON - The Pension Benefit Guaranty Corporation’s Multiemployer Insurance Program continues to face insolvency by the end of fiscal year 2025, according to findings in the FY 2017 Projections Report. The agency’s insurance program for multiemployer pension plans covers over 10 million people.

The new projections show a narrower range of years for the likely date of insolvency of the Multiemployer Program. The likelihood that the Multiemployer Program will run out of money before the end of FY 2025 has grown to over 90 percent, and there remains a significant chance the program will run out of money during FY 2024. The likelihood the program will remain solvent after FY 2026 is now less than 1 percent.

Submitted by gzz on October 5, 2019 - 7:04pm.

Phaster the PBGC is not economically significant. It pays reduced pensions to old industrials whose defined benefit pension plans went bust. It will likely be bailed out if it becomes insolvent, but it won’t be that much money.

While not a good thing if a bunch of 85 year old widows of steelworkers see their pension cut another 15%, it just won’t have any larger effect.

Arguably it wouldn’t even be unfair. A lot of these plans agreed to benefits when inflation was high, and it was expected by everyone that inflation would reduce the obligations more than actually happened. So some of these old pensions would, as a worst case, just be reduced to the expected real value.

Submitted by phaster on October 6, 2019 - 12:13pm.

gzz wrote:
Phaster the PBGC is not economically significant. It pays reduced pensions to old industrials whose defined benefit pension plans went bust. It will likely be bailed out if it becomes insolvent, but it won’t be that much money.

unto itself the failure of PBGC might not be economically significant,... BUT what I am pondering is something akin to the expression "death by a thousand cuts"

IOW let's first consider a failure of PBGC,... 10 million workers who bitch to politicians they are screwed, are going to demand taxpayers make them whole

now let's look at the city of SD,...

here we have another issue which it is assumed local taxpayers are the financial backstop (i.e. the california rule),... AND these two potential failures are only first order taxpayer burden effects,... what of all the various negative feed backs if/when the economic house of cards falls???

speaking of a potential house of cards


Repo glitches expose flaws in Fed’s approach

Central bank might have acted more quickly if the repo market were its primary target

Overnight repo rates — the interest rate paid to borrow cash in exchange for Treasuries for just 24 hours — began rising on Monday, September 16. But it was not until after 9am the next day that the New York Fed, which is responsible for implementing the Federal Reserve’s monetary policy, stepped in to try to ease the strain.

According to John Williams, president of the New York Fed, the announcement was timed to coincide with the release of data showing a rise in the effective federal funds rate. That makes the mandate for intervention clear.

...But the Fed’s sortie into the repo market — since repeated several times — has stirred conversations about whether policymakers are focused on the right short-term rate. Fed funds was once the driving force of cash markets. Now it is a back-seat passenger and repo is at the wheel.

...fed funds is hardly representative of the dynamics affecting short-term lending markets. As was seen in September, its basic function — to track the Fed’s target rate — has broken down, because it is now susceptible to movements in other rates such as repo rather than driving them.

...Since the Fed has started reversing QE, reserves have fallen and some — but not all — players have consequently run short of cash again. Such shortages are threatening the ability of the Fed to maintain control of the effective fed funds rate

in related news,...


Fed to Keep Pumping Liquidity Into Repo Market Through October
By Alex Harris

October 4, 2019, 11:02 AM PDT Updated on October 4, 2019, 11:37 AM PDT

...The Federal Reserve Bank of New York said Friday that it will conduct operations for overnight repurchase agreements through Nov. 4, having previously only scheduled them through Oct. 10. The central bank also announced eight new term offerings to provide additional funding through this month.

...These measures are officially aimed at keeping the fed funds rate within the central bank’s target range. While those measures did bring the market more in line with this, there was a brief move upward in repo rates at the end of September as participants fulfilled quarter-end funding needs.

just saying w/ all the various issues not being directly addressed or well understood by those at the controls, I think we're going to see a yuge example of murphy's law in action

Submitted by phaster on October 13, 2019 - 1:19pm.

gzz wrote:
Phaster the PBGC is not economically significant. It pays reduced pensions to old industrials whose defined benefit pension plans went bust. It will likely be bailed out if it becomes insolvent, but it won’t be that much money.

While not a good thing if a bunch of 85 year old widows of steelworkers see their pension cut another 15%, it just won’t have any larger effect.

Arguably it wouldn’t even be unfair. A lot of these plans agreed to benefits when inflation was high, and it was expected by everyone that inflation would reduce the obligations more than actually happened. So some of these old pensions would, as a worst case, just be reduced to the expected real value.

this past another big corporate "old industrial" pension domino falls

GE's pension freeze puts a spotlight on America's retirement planning problem

which puts pressure on the PBGC,...serendipity (not in a good way)

FWIW actually parts of GE are pretty far from being "old industrial"

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