Interest rates to halve
May 27, 2023
One minute read
Oil as benchmark, flat
10 year yields 50% too high
Short term rates 100% too high
One minute read
Oil as benchmark, flat
- Oil prices had a great run in 2021 & 2022….From a negative futures price .. remember that? The oil price went back to a triple digits above 100 dollars for the first time in years.
- Oil we can say is a benchmark for the inflation which then rocketed up to almost double digits in the US, double digits in the UK & 6% here in Indonesia.
- But now the oil price is back to down trading around 70 dollars which is roughly where is was five years ago in 2018… which means that inflation & interest rates should do roughly the same 5 years flat correction.
10 year yields 50% too high
- Our Indonesian 10 year government bond yields are already following this patter & even a bit lower now than the 6.5% they were back in early 2018.
- But in the US which is key, their 10 year government bond yield is a bit higher now at 3.8%.
- US 10 year yields should all things being equal now go back down to where they were before & maybe below 3% as inflation comes down further in the next few months.
Short term rates 100% too high
- Our short term rates here , the BI 7 days repo was at 4.25% in early 2018. It’s now at 6% so about 50% too high & should come back down to where it was before.
- The US short term T bill (& the Fed) is now at 5% or even slightly above, compared to about 2.4% back in early 2018 so 100% too high!
- The short term interest rates are too high, way too high in the US & should have a pretty dramatic decline in the next few months which would be… great.
