Gilt Yields Are Up And Rising Rates Should Be Good News For Savers

Rob Mackrill - Mon 02 Jul, 2007

Rising rates are lousy news for debtors not tucked up in long-term fixed rate deals. But where theres a yin theres a yang when it comes to rates. Bad news for borrowers should be good news for savers. It should be good news if youre nearing retirement too. Gilt yields are up that means annuity rates are up too. According to a helpful chart from the Annuity Bureau back in 1990, a pot of pension money built up over a working life could have bought a 65 year old male almost 11,000 a year in income for life...

It’s a sad day in Daily Reckoning Towers...the canteen’s
closing down.

Why, no one seems to know for sure. Lack of trade seems
to be the consensual assumption. And that does for most
businesses. The net net is our daily fare that stretched
from frothy coffees through to sandwiches, salads, soups
and hot meals is being condensed into a single vending
machine dispensing sweet fizzy drinks, crisps and
chocolate.

London lunch delivery services please drop us a line
before we get fat and our teeth fall out.

Another business that is closing down is Caliber Global
Investment Ltd. Though its business is not catering. It
is/was an $900m investment company. Its business was
borrowing cheap, buying high yielding subprime mortgage
debt and pocketing the difference. It only listed two
years ago but its share price chart tells a story of woe
more crisply than any financial hack ever could. From a
high of $12 a share they now trade at under $5.

The Times asks “[Is this the] tip of an iceberg?” in
subprime mortgages.

Yes, according to Peter Schiff, president of securities
brokerage Euro Pacific Capital in Darien, Connecticut.

``The losses are going to be phenomenal'' for funds
worldwide holding subprime debt, he tells Bloomberg. ``My
guestimate in the subprime world is that the majority of
loans are going to go into default. Not just 5 or 10
percent, but the majority.''

*** It’s a big day for the UK. No politician campaigned
and none of us voted and yet, we’ve got a new government.
A new prime minister, a new chancellor, a new foreign
secretary and so on all the way round the cabinet table.
Gordon Brown finally starts the job he always wanted
while Tony Blair gets used to yomping his own luggage.

The silver-haired Alastair Darling is the new chancellor.
What will he do? Most likely what his boss wants him to.
And, let’s face it, the chances of him pulling one over
on the new prime minister, one of the longest-ever
serving chancellor’s in history, are next to zero.

But somehow the Labour party appears to have pulled off
what the Conservative party before them, never did. In
spite of the long-running ‘feud’ between Blair and Brown,
squabbles in the public domain have been few in
comparison and the transfer of power relatively peaceful.
Though whether we’ll vote for Brown next time round is
the $100m dollar question...a few weeks ago I’d have said
no but now it’s a er, maybe. But then as the saying goes,
a week is a long time in politics.

*** Scarcely a day goes by without a new turn in the
giant game of risk being played out for control of the
world’s energy resources. The Daily Mail reports Russia
is laying claim to a large chunk of the Arctic. The area
is five times the size of Britain and thought to contain
twice the oil reserves of Saudi Arabia as well as gold,
diamonds, platinum, tin, nickel, lead and manganese.

And their justification for this land claim? Putin’s
scientists claim an underwater ridge is part of Russia’s
Siberian continental shelf.

*** Interest rates are going up says Fleet Street Letter
editor, Brian Durrant. Some analysts see 6 percent by
the end of the year. News from the latest Nationwide
house price survey lends support to the view. House
prices in June rose at their fastest monthly pace since
the start of the year. Does that include houses built
on flood plains?

*** Rising rates are lousy news for debtors not tucked up
in long-term fixed rate deals. But where there’s a yin
there’s a yang when it comes to rates. Bad news for
borrowers should be good news for savers. It should be
good news if you’re nearing retirement too. Gilt yields
are up that means annuity rates are up too.

According to a helpful chart from the Annuity Bureau back
in 1990, a pot of pension money built up over a working
life could have bought a 65 year old male almost £11,000
a year in income for life. Not only that, it would even
go up a little bit each year (3%) to help keep at bay the
withering effect of inflation over time. In February this
year that same pot of money bought you a less than £5,000
a year.

Since that time, interest rates have gone and gilt yields
are up too. Today our same 65 year old senior can get
over £7,000 a year for his money, albeit without any
inflationary increases.

*** Expect Revenue and Customs to up the ante with buyout
deals says our tax expert at accountant’s Macintyre
Hudson. Knives are starting to sharpen as HMRC looks
closely at how deals were done. Those bought by
entrepreneurs qualify for the juicy capital gains taper
relief break reducing tax to 10 percent.

Those deemed bought by individuals in the course of their
employment might not qualify. Instead they could end up
paying 40 percent under the more penal income tax regime. 

Regards

Rob Mackrill
For The Daily Reckoning

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