19 Jul 2019

Bank of Ireland: Small cuts to fixed rate mortgages

In a sign that we may be about to see another small round of mortgage rate cuts across the sector, Bank of Ireland has announced some slight reductions in its main 5yr (by 20bps to 3% for < 80% LTV) and 10yr (also by 20bps to 3.3%) fixed rate mortgage products, reversing similar increases it applied to these prices earlier this year, according to reporting in the Irish Independent and confirmed by the bank. 

The reductions reflect lower wholesale borrowing rates and bond yields seen in recent months, and are not wholly unexpected. 

We expect to see some similar slight tweaking lower of mortgage rates by other banks in the sector in H219, with Ulster Bank having recently reduced one of its main SVR rates in response to lower wholesale rates. 

NTMA sells T-bills at a yield closer to -1% than 0% 

Ireland’s NTMA yesterday “tapped” its existing June 2020 T-bill (IE00BH3SQC39), raising €500m of funding in the process.

This T-bill was first auctioned on June 20th, when the debt agency raised €500m at a yield of -47bps. The yield on the bill had tightened to -51bps when the agency announced this “tap” earlier in the week and yesterday’s issuance was priced at -54bps with a cover of 3.05x.

This is the lowest rate at which the NTMA has raised funding, exceeding the -53bps it “paid” at a T-bill auction in March. While this issuance of itself won’t significantly improve the country’s funding metrics, it is a stark reminder of how far Ireland has come since it re-entered the bond markets just 7 years ago.

Williams goes all dovish

Surprisingly dovish comments late yesterday evening from NY Fed President, John Williams, a voting member and a noted hawk, helped to push the dollar and US treasury yields lower across the board. 

He said, “It’s better to take preventative measures than to wait for disaster to unfold. When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress. These actions, taken together, should vaccinate the economy and protect it from the more insidious disease of too low inflation." 

This apparent monetary policy ‘volte face’ was enough to push the benchmark EUR/USD rate 50 points higher from 1.1230 to 1.1280, drag US 10y treasury yields lower from 2.07% to 2.02% and briefly move expectations of a 0.50% rate cut at the July 31st Fed meeting to just over 70% from in/around 35% the previous day.


His comments were so out of character and so dovish that the sharp market reaction nudged the NY Fed to quickly pump out a disclaimer, stating that his comments were based on academic research and "not about potential policy actions at the upcoming meeting." The Fed missive helped to pull the dollar and yields back somewhat but with a 0.25% cut fully priced in, Mr. Williams comments certainly give those holding out for a 0.50% cut a fighting chance.

UK June retail sales data

June’s retail sales figures (released yesterday) for the UK were far better than expected, rising 1.0% on the month in June after falling 0.6% in May. 

Consensus expectations had been for a 0.3% drop, while Investec Economics had forecast a more marked 0.6% contraction. Excluding sales on fuel forecourts, the ‘core’ measure of retail sales rose by 0.9%, following a decline of 0.4% previously. Detail of the release shows that the improvement was largely driven by predominantly non-food stores. Within this, clothing retailers reported volume growth of 1.2% amid reports of a stronger take-up of summer sales after a sluggish start in May. 

Sterling has built on its gains of yesterday on the back of the stronger-than-expected figures with the benchmark EUR/GBP rate dipping back under the pivotal £0.90 level.

ECB to Revise Inflation Policy

The Euro retreated yesterday following comments on Bloomberg that ECB staff are “informally analysing the institution’s policy approach, including the question of whether the current target of consumer-price growth below, but close to, 2%” is still appropriate for the post-crisis era." This is similar to the Fed, who are considering a period of above target inflation to make up for the recent prolonged period of below target inflation. 

This has been interpreted by markets as a dovish signal and sent EUR/GBP back below 0.90p. Markets are now 50:50 as to whether the ECB will enact a 10bps (deposit) rate cut at next week’s meeting. Investec’s view is that they will hold off until September. 

Economic Releases

15.00  US   Michigan Sentiment