An obscure corner of the financial markets has recently been sending out signals that may point to millions of people eventually paying more on their home loans.
For the first time in two years, investors have started to place (cautious) bets that the next move in official interest rates will be an increase, rather than the cuts we've become accustomed to over the last five years.
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What if interest rates go up?
Even a small hike can have a big effect on the hip pocket.
It's been quite a backflip. A few months ago these markets were of the view Reserve Bank governor Philip Lowe would probably cut the cash rate this month to just 1.25 per cent. After that didn't happen, there are now narrow odds of an increase next year.
Could it be true that we have finally reached the low point in the interest rate cycle?
![Markets are betting RBA governor Philip Lowe will not cut official rates again.](/web/20161202070715im_/http://www.smh.com.au/content/dam/images/g/r/l/t/p/b/image.related.articleLeadwide.620x349.gsuq32.png/1480405647052.jpg)
No one knows for sure, but some analysts who specialise in trying to read the central bank tea leaves have also hastily changed their forecasts lately, scrubbing out their predictions that Lowe will cut interest rates again in the first half of 2017.
Another sign the interest rate cycle may be turning can be seen in the fixed-rate home loan market. These rates reflect the banks' expectations for interest rates, and Westpac and a host of smaller banks have in the last few months started to lift borrowing costs for customers taking out new loans.
Why the change of heart, then?
Donald Trump's election win is partly to blame, believe it or not.
The "Trump effect" is finance-speak for the belief that next US president will unleash something that's been severely lacking in the world economy lately: higher inflation.
This prospect has caused investors to sell US Treasury bonds, which were paying such low returns to their holders that even a modest lift in inflation would have meant they'd have been underwater in "real" terms.
The bond sell-off began a few months ago, but it accelerated after Trump's win.
When bond prices fall in a sell-off, it causes yields to rise, and that has been the case around the world, including here. Higher yields have then followed into the "swaps" markets used by banks to protect themselves against future changes in rates, and the banks pass this on through fixed-rate mortgage pricing.
However, the change of heart in interest rate markets is more than just a quirk in arcane markets used by banks and speculators. There are also deeper economic reasons for Lowe to be more reluctant about cutting interest rates.
One is the seemingly obvious point that households are already carrying plenty of debt. Encouraging even more borrowing "is unlikely to be in the public interest" Lowe said this month, which seems a pretty clear signal he's not about to cut rates again.
Another change is that we're now getting paid billions more for our biggest commodity exports. The Reserve Bank's index of our top export commodities has risen 30 per cent this year, mainly because of a surge in the price of iron ore and coal.
Even if it peters out, this is a sharp change from the 60 per cent slide in prices over the past five years, and higher prices would act as a big source of economic stimulus.
Markets are notoriously fickle about this sort of thing, of course, and official rates will almost certainly not rise soon.
But if you draw all these threads together, it is looking much less likely that debt will get even cheaper than it already is.
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