Homeloan carry trade, profit from your mortgage?

‘Carry trade’ is where you borrow and pay interest in order to buy something else that pays higher interest, the difference (when it is working as planned) is called ‘positive carry’. Usually this is done in bonds or currency, for instance, if you were to borrow money on short term rates to finance longer term bonds. The interest being paid on the long term bonds minus the interest on the short term borrowing would be the ‘carry return’. In currency the Yen was a very popular carry trade currency as their interest rate was 0%. So you could borrow in Yen, buy something else (unfortunately this money often ended up in CDO’s) such as US Tnotes and keep the difference, the main risk being that one that the Yen would strengthen significantly meaning you couldn’t pay back the original loan.

How does this affect mortgages though?

NOTE: THIS IS NOT A SUGGESTION THAT YOU DO WHAT IS DESCRIBED HERE! THIS IS MERELY MAKING A POINT!

Read More

The secondary insurance market 'settlements'

Often you hear about a ‘secondary market‘ and often it is related to bonds, in particular the likes of TBills (Tbills are US Government bonds that run less than 12 months, TNotes on the other hand run longer than a year). What this means is that there is a market which operates outside of the primary market – where the transaction first takes place. In the treasury realm (the likes of Tbills) the primary market is from the Government to the buyer – either institutional or private – and the secondary market is between (for instance) one private individual and another. Why does it exist? Simply because the maturity date on the bond may not suit the holder, so private individual A will sell to B rather than wait until the time the bond matures.

A Secondary market exists in many other areas too, one example is that of Life Assurance. There are companies …

Read More

The secondary insurance market ‘settlements’

Often you hear about a ‘secondary market‘ and often it is related to bonds, in particular the likes of TBills (Tbills are US Government bonds that run less than 12 months, TNotes on the other hand run longer than a year). What this means is that there is a market which operates outside of the primary market – where the transaction first takes place. In the treasury realm (the likes of Tbills) the primary market is from the Government to the buyer – either institutional or private – and the secondary market is between (for instance) one private individual and another. Why does it exist? Simply because the maturity date on the bond may not suit the holder, so private individual A will sell to B rather than wait until the time the bond matures.

A Secondary market exists in many other areas too, one example is that of Life Assurance. There are companies …

Read More

First Active set to close.

It was announced yesterday that First Active is going to close operations in Ireland. This will start with 750 job losses coming into effect via voluntary redundancies, 550 of which will be in the Republic. Unions in Ulsterbank/First Active have said that bank workers are ‘scapegoats’, we spoke about the coming job losses in April of 2008 here.

RBS have made record losses, this lead to their bailout by the UK government. On the ground here it means that at 45 locations First Active will merge with Ulsterbank branches. The removal of First Active from the market will mean there is less competition in Irish lending, this will set the basis for increased margins on lending – at a time when the ECB is dropping rates. Having said that, First Active and Ulsterbank prices are amongst the most expensive in the market with variable rates of over 6% when market leading rates are under 4%.

In …

Read More

Survival of the weakest, only in Ireland.

If the State can’t organise a bailout effectively then what hope have they of running a bank? A simple and yet profound question: if the bankers who run banks for a living (many having survived the 70’s and 80’s) can’t find the answers then what hope have the state who have no track record in doing so?

This is not a simple situation, banks that survived the Great Depression have crashed and burned, given this, is it vital to save every bank? Is a bank going to make it even with a slush fund? Thus far I remain unconvinced.

Anglo Irish Bank was set to get a bailout to the tune of 1.5 billion Euro. This couldn’t be arranged in time to save the bank and they have been nationalised, the speed of their fall from grace tells us at least some basic facts:

Anglo were not the strongest bank in the bunch, I won’t get into balance sheets, loans, impairments or anything else, the mere fact that they fell first …

Read More

The end of ownership

I had an interesting conversation with an Estate Agent recently who has been in the industry for over thirty years and he said that he felt he was seeing the ‘end of ownership’ in the young people today. That really got me thinking.

‘What do you mean by that?’ I naturally enquired, and basically he said that he was seeing a trend in young people not feeling any incentive to buy a house, not only in the short term but ever, ‘why would they buy, kit a place out and go to all the expense when they can just rent a place ready to go and any problem is the landlords?’ was his response. And one must admit that there is a large dose of common sense in that. Renting is no more dead money than mortgage interest is dead money, however, what it could mean for the future is that we become a nation of landed and un-landed citizens, which is ironic given that land ownership has played such a strong part in …

Read More