Interest rates +0.5% in May

[huja]

Just by dumb luck, I locked in a mortgage in November. Can't believe how much purchasing power I would lost had I waited until now.

[shri]

- what are these low loan rates that you're getting? Hibor + x ?

[ndt]

I doubt anything is going to change in short term, if histroy is any guide, there was no significant increase in HK Prime or HIBOR rate when Fed increased rates in few rounds last time around.. So far seems same story repeating again, enough liquidity in banking system to absorb few shocks. Besides if HIBOR goes up few notch, anyway refinancing the mortgage is not going to help much unless new offers start getting worse in terms of H +++...

[bdw]

- what are these low loan rates that you're getting? Hibor + x ?

Hike started the FARM (fixed rate mortgage) thread in May 2021 and at that time I think he took out a 10 year fixed mortgage at 1.99%. Most of us on that thread were happy to keep adjustable rates which worked around around 1.4% and Hike was trying to convince us that FARM was better.

Now a year later, Hike is paying 1.99% the last year, those of us on variable are still paying 1.3 or 1.4%. I guess that Hike is quite keen for rates to rise so that his gamble can start to pay off. So far he's down 0.7% for a year. So he wants them to rise so that we stop laughing at him and then he starts laughing at us. Will be interesting to see what happens and in 10 years from now who wins

[ndt]

This is the Fed funds rate plotted against 1M Hibor. Which part looks like HIBOR not following the Fed Funds Rate? White line is Feb, orange HIBOR.

Brain fart on my part, while typing i vaguely remembered also that it wasn't that Hibor was not increasing last time but it didn't have material impact because of secondary cap of P-XX% for Hibor loans so effectively many borrowers were hitting that cap and paying around 2.25-50% interest on mortgage while someone like @bdw on H+0.1 or something loan right after GFC were still paying under that cap..

When you think about the mechanics of the leg, it's obvious why this relationship has to hold. If FFR is above HIBOR then and HKD cash owner can switch out HKD to USD and earn a higher interest rate.

Reminds me this arbitrage was going full-on couple of years ago and HKMA defending peg almost every week during peak time..

[bdw]

Original Post Deleted

Your points all valid. You may have made a very wise decision locking in a fixed rate a year ago, only time will tell. I chose to stick with the lowest possible rate at the time and deal with increases as they come.

One thing I did do a few months ago, HSBC were kind enough to loan me HK$2m for 5 years at a fixed APR 1.65%. I jumped at it. Invested some of the money, but some just sitting in my mortgage offset account, saving me 1.48% (todays interest rate based on Hibor). So I'm actually losing now (borrowed at 1.65% to save 1.48%) but I feel this only short term and rates are poised to rise and then my 5 year fixed HSBC loan will start to pay off.

[freeier]

Currently HKD market still has around HKD 350b loose liquidity in the aggregate balance, so that maintained the slack in Hibor versus SOFR. However, HKD is now trading close to 7.85 and numerically we should see some undertaking activities by HKMA when the 7.85 zone is touched.

Once aggregate balance drops to the lower 2 digit b (which can happen quickly when arbitrage activities occur), Hibor should start to track SOFR/Libor closer. Don't think HKMA will release more liquidity into the market just to hold Hibor down.

Assuming Hibor and Libor/SOFR moves in tandem soon, the market is predicting year end Fed Fund rate of around 2.5%.. then from that angle Hike's move to lock in rates at 1.99% could appear a nice smart move.

[shri]

75 is the new 50 ...

Seen in a newsletter...

Nomura says today that the FOMC will hike the fed funds rate by 75 basis points in June and July after a 50-basis point rise in May. That would bring the rate up to 2.25%, a phenomenal amount of tightening given that the Fed was still easing by buying assets as recently as March.

[Peaky]

I saw that today and couldn't believe what I was hearing.

However the front cover of the economist today is basically “How the Fed fucked up”... truly amazing rate of increase if we go up 200bps in 3 months. Doubtful as I'm pretty sure that'd crash the stock market hard for non bank stock though...

[RobRoy]

freeier explains well the short term mechanics that is happening now, HIBOR is lagging USD LIBOR (or Term SOFR) until our reserves deplete which happens quickly when we reach the weaker end of the band. We are basically there now, so give it 3-4 months and we are in tandem with USD again. So actually HIBOR will increase faster than USD to catch up with the USD rate.

1 Month HIBOR is 0.2, 1 month USD LIBOR is 0.66. So probably in 3 months HIBOR has increased 0.4ish to catch up + the 50 bp hike, so 0.9% higer HIBOR towards end of the summer.

That's an extra 7500 HKD per month on a 10m mortgage.

And the market prices in hikes to year end which puts the rate more than 2% higher than the current levels. That's another 20 000 HKD per month on a 10m mortgage.