Interest Rates Trading

Interest Rates Trading

Trading Features / Strategies from Simon Denham of Capital Spreads.

Well the Bank of England lived up to expectations and we now sit with interest rates ‘merely’ 2.25% above the US and some 5% above Japan and even 0.75% above China (growth 10%, inflation over 6%!!).

With FX traders hunting in packs for possible rate reducing central banks there are few arguments for using high rates to prop up your currency. The nature of trading is usually to buy the rumour sell the fact. Witness the rise of the dollar since they cut rates unexpectedly over the past few weeks. When markets see a possible long term decline in interest rates there is always the tendency to sell the currency concerned causing an overall negative trend.

Financial Spreads » "With FinancialSpreads.com you get all the normal
advantages of Spread Betting plus..." » read Financial Spreads review.

The arguments of economists that inflation is the great destroyer may be correct if economies are stagnating (and if inflation is very high) but if the stagnation is to some extent caused by the very tool that you are using fight your battle then the whole thing becomes pointless.

Adding the Northern Rock loans to the national debt makes for great headlines but it also shows how spineless the ONS actually is. At least the Northern Rock debt is backed up by a rather good mortgage book on the other side of the balance sheet. There is a whole host of much more deserving quasi government loan guarantees (witness the Metronet £1.7bn disaster) that Gordon Brown has managed to offload from the numbers. It is not this one off addition that should be worrying the markets it is the ongoing reduction of taxable income that is rather more important. Whether you like banks or not they pay many billions in corporation tax into the Treasury coffers. After the huge Q4 07 write off of sub prime exposure they will not only be paying substantially less but in many cases will be clawing back pre-paid ‘in arrears’ corporation tax.

The future does not look particularly bright either as Treasury forecasts will have assumed ongoing increases into 2008/09. The financial sector, and by association many other sectors, may well be giving substantially less than expected over the coming 2 years. The cumulative effect of this, even if the economy does not slow, is likely to leave the Public sector Debt/GDP ratio looking very poor indeed. It might not feel like it at the moment but the likelihood is that Gilt yields will widen considerably making long term borrowing costs considerably more expensive. This is how national economic disasters snowball. Higher Debt equals higher lending rates demanded by government bond investors equals greater percentage of tax revenue just to pay interest burden equals lower growth equals higher debt equals higher lending rates etc etc. Unfortunately this is a rather depressing vision so we will all hope that it does not become fact.

The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.

Capital Spreads » "With Capital Spreads you get all the normal
advantages of Spread Betting plus..." » read Capital Spreads review.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'Interest Rates Trading' edited by DB, updated 13-Feb-08

Related Articles:

Bonds Spread Betting, updated 15-May-13
Bonds spread betting guide with a bonds spread betting price comparison, where to spread bet on government bonds tax-free*, how to get bonds charts and prices as well as...read article: Bonds Spread Betting.

Interest Rates Spread Betting, updated 22-May-13
Interest rate spread betting guide with an interest rate price comparison. Also where to spread bet on STIRS tax-free*, where to get interest rate charts, how to spread bet on interest rate futures and...read article: Interest Rates Spread Betting.

Spread Trading Bonds and Interest Rates, updated 15-May-13
Your guide to bonds and interest rates trading with price comparison tables, where to trade, how to trade interest rates and government bonds, where to get live prices. There is also a look at...read article: Spread Trading Bonds and Interest Rates.

Spread Betting on Italian Bonds, updated 21-Jul-11
Spread Betting on Italian Bonds - You can now spread bet on Italian sovereign debt. With spread betting on Italian Bonds you can take a view on Italy's debt by...read article: Spread Betting on Italian Bonds.

Bond Spread Betting Markets and the Recovery, updated 25-Aug-10
Much as it might surprise readers the biggest investment market in the world is not equities, it's the bond markets. This market, if it is correct, is now telling us a worrying story...read article: Bond Spread Betting Markets and the Recovery.

Interest Rates Trading, updated 13-Feb-08
Adding the Northern Rock loans to the national debt makes for great headlines but it also shows how spineless the ONS actually is. At least the Northern Rock debt is backed up by a rather good mortgage book on the other side of the balance sheet. There is a whole host of much more...read article: Interest Rates Trading.

Bonds Spread Betting: European Debt Crisis Explained, updated 15-Sep-11
European Debt Crisis Explained: The latest development in the European debt crisis is the downgrading of two major French banks due to their exposure to bad government bonds. The problem arises when the bonds spread betting markets start doubting...read article: Bonds Spread Betting: European Debt Crisis Explained.

How to Spread Bet on Bonds and Interest Rates, updated 07-May-13
How to Spread Bet on Bonds and Interest Rates. A look at how to spread bet on bonds and interest rates such as short sterling. Plus answers to a range of how to spread bet on bonds and interest rates questions including which bonds and interest rates you can...read article: How to Spread Bet on Bonds and Interest Rates.

First Page << >> Last Page

Also see:

Trading Features / Strategies Index – an index of all the Trading Features.

Q) Average Trading Results?

A) Get free trading tips, offers, price updates, important news and more! All Free - Click here!

Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The contents on CleanFinancial.com are for information purposes only and are not intended as a recommendation to trade. Nothing on this website should be construed as investment advice.

Neither CleanFinancial.com nor any contributing company/author accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

* Tax law is subject to change or may differ if you pay tax in a jurisdiction other than the UK.

1) Daily Trading Tips

2) Financial Tips

3) Financial Tipping