The recent cavalcade of reports on banks hiking mortgage rates got me thinking: if borrowers are getting squeezed, are long-suffering savers finally getting some relief?
Looking back over the past six months, the evidence suggests not. The average variable home loan rate over that period has moved a touch higher to 4.56 per cent from 4.43 per cent, on research house RateCity numbers. Yet deposit rates have gone the other way. One-year term deposits on average offer 2.3 per cent against 2.35 per cent in November. Average "bonus saver" rates have moved to 1.59 per cent from 1.62 per cent.
Put those numbers after inflation, and with the headline consumer price inflation running at 2.1 per cent, cash serves up some very meagre returns indeed.
"It looks like the banks are having their cake and eating it too," huffs RateCity money editor Sally Tindall. And she has a point — borrowers and savers are getting squeezed alike. To be fair on the poor old banks, they have been pushing rates up in response to regulatory measures that are (very) belatedly trying to curb the worst of the property market excesses.
In any case, there's no sign of sweet relief here for conservative savers, who just want a bit of reward for putting their money in the bank after years of seeing their hard-earned dollars hardly earning at all.
When you look at what's happened over the past year, though, the picture looks a bit better.
"Very, very tentatively, we are starting to see retail deposit rates lifting from the lows," Russell Investments senior investment strategist Graham Harman says.
Harman says the deposit rate uplift is "extremely patchy right now". But, he reckons, if you have $10,000 in an online savings account you're getting 1.65 per cent now versus 1.55 per cent a year ago. Harman points out that that's a 6 per cent pay rise. And in a three-year bank term deposit, you're getting 2.95 per cent now against 2.60 per cent this time last year – a 13 per cent pay rise. Break out the champagne!
It's a similar story in bond markets. It was in July of last year that US 10-year bond yields hit what now looks to be their lowest for this cycle at 1.36 per cent. Aussie bond yields bottomed out a month or so later at 1.8 per cent. Those yields now stand at 2.24 per cent and 2.4 per cent, respectively.
That's good news, right?
"At least it's a whiff of oxygen in the bell jar," Harman says wryly.
It's "definitely an improvement", says First State Super head of investment strategy Michael Blayney. "For conservative investors, things are a little better." He pauses for a second, and then: "Or they are 'less worse', would be a good way to put it."
We are not at the point where "you would want to go out and fill your boots with bonds," Blayney adds. "If they were 100 basis points [1 percentage point] north of where they are now, then you might identify that as quite a good buying opportunity."
Economists and professional investors are happy to say 2016 was an inflection point for bonds. And while it might feel like something fundamental has changed across rates markets, the reality is less dramatic.
"There's this perception that rates have moved materially," Jarod Dawson, who runs PM Capital's enhanced yield fund, says. "But I don't think they have moved as much as people think."
"Look at Japan,Germany, and Switzerland: their 10-year bond rates are still basically zero per cent. And over the past 12 or 18 months, all three of those countries have issued bonds with negative yields."
Blayney agrees, saying despite all that has happened over the past 12 month, it seems a case of "no matter how much things change, they seem to stay the same".
And here's an important point: it's not to say things aren't moving, just that they tend to move a lot more slowly than people think.
"It's one of those things where you look back a decade and things have changed a lot," Blayney says."People tend to overestimate things changing in the short term, and underestimate things changing in the long term."
Dawson points out that the average cash rate in the US over the 20 years before the GFC was 5 per cent, against 1 per cent today. So even to get back to where we were over the very long term pre-GFC, you've got another 4 percentage points to go.
"We may or may not get there —you can get hung up thinking about it —but the reality is that rates globally are still very, very low, and we think they have a long way to go up over time," Dawson says.
What that means for your portfolio depends, of course, on what you're invested in.
Dawson's fund is "basically invested in floating rate notes", which means as rates rise the returns from his fund will ratchet higher as well. That means he is comfortable with an upward move in rates, as long as it happens in an orderly fashion, backed by economic fundamentals, and not in a "knee-jerk" fashion in response to an unexpected jump in inflation. Which would be bad news for just about everybody.
At the end of the day, we all love a cheque in the mail. But for almost all classes of investors, what really matters are total returns, Blayney notes. You need a lot of money to even contemplate living exclusively off your coupon or dividend payments. Most of us in retirement will draw down on our capital. And when modelling whether you'll outlive your savings "mathematically what matters is total return," Blayney says.
And that is what is likely to keep investors and savers in sharemarkets for some time yet.
