Interest rates and their future direction remain an investor obsession in 2018. Yesterday saw a big sell off in US government bonds pushing yields - the return investors expect for lending money to the US government - to their highest level in nearly a year. Concern on this side of the Atlantic is more muted as the European Central Bank, unlike the US Federal Reserve, has yet to begin hiking rates. But all that could that change in the coming months.
John Finn, managing director of Treasury Solutions, said that while the European Central Bank is not likely to make any big moves on interest rates this year, 2018 could be the last year of 0% rates in the euro zone. Mr Finn said that tracker mortgage holders should ascertain how much a 1% increase in rates would impact their monthly repayments and begin to factor that increase into their cash flow.
For those on standard variable rate mortgages or those intending to take out a new mortgage, Mr Finn said they should focus on fixed rates to see what sort of value is out there. He also said it could be worthwhile to see if a consumer could split their mortgage where they could fix 60-70% of it and leave the remaining part variable as that allows some flexibility. If banks are offering the same rate for different periods - three or five years - Mr Finn said that usually the longer period is better value for the mortgage holder.
According to Mr Finn, the market view is that interest rates will not rise too aggressively, but he added that fixed rates tend to rise earlier than variable rates - six months earlier - and the markets tend to overdo the increases. The worry for consumers is when interest rates start to rise and they do not see any increases in their wages - as is happening in the UK at the moment. People's spending power is hit which in turn has a negative impact on the economy, he added.
Mr Finn said the Brexit issue will be the main factor on the euro-sterling rate in the coming months, and he cautions that a level of 90-93 pence sterling against the euro will prove painful for Irish exporters. He advises exporters to "sell on the dips" and remain alert to the changes in the currency markets. But he said there is still a 10% chance that something will happen to delay or elongate the Brexit process, which would provide some relief for Irish exporters.
MORNING BRIEFS - Builders merchant and DIY retailer Grafton Group is benefiting from a surge in spending on construction and home improvements in Ireland. Its home market is a relatively small piece of the overall pie for Grafton compared to the UK but a trading update this morning notes a fourth consecutive year of double-digit growth in percentage terms in its merchanting business here. Grafton said the Woodies DIY chain, which it also owns, traded strongly in 2017.
*** Tesco Ireland sales during the Christmas period were up 4% on a like-for-like basis compared to 2016. In a statement to the stock exchange this morning the retailer said over the 19 weeks to the 6th of January it experienced the highest rate of market share growth in Ireland for five years.
*** A big sell-off in 10 year US government bonds has pushed yields, reflecting investor expectations about future interest rates, to their highest level in nearly a year. The bond market volatility reflects a number of factors including concerns that the US Federal Reserve may hike rates and roll back stimulus at a faster pace than previously anticipated.
*** Irish businessman Paul Coulson is in line for a one-off payment of over €100m from packaging company Ardagh Glass. The New York Stock Exchange-listed firm, founded by Mr Coulson who is also its chief executive, is to raise $350m - €293m at today's exchange rate - to provide liquidity to shareholders including Mr Coulson.