Following the news from the US last week, the yield on the benchmark 10-Year bond has risen. This may signal the end of ultra-low interest rates and low inflation, and may create new challenges for central banks.
This is because the US benchmark has impact on the global capital markets, and will push other rates higher. This may see stock markets fall. Inflation may rise.
So, in Australia, we are probably at the bottom of the rate cycle, and the next move will be up. But meantime, as banks continue to rely on the international capital markets for some of their funding, expect out of cycle rate rises. Some fixed rate mortgages have already risen. Most households are on a variable rate mortgage, so would feel a rise straight away.
However, it may be good news for savers because conceivably savings rates will also begin to improve.
The sleeper of course is the potential hit on international trade should the US start a trade war. The fallout of a trade tariff argument between USA and China could hit Australia hard. If it did, we have little left in rate cuts to stimulate further, so employment may fall.
But given household debt is high, and mortgage repayments already large, any rise in rates would reduce household spending and lift delinquencies higher. Both depressive on house prices.
The next few months will be “interesting”!
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