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Holly's Blog: Calculators, Sub-Prime Ministers and Weird Yields

11 July, 2017

Something strange is going on at the minute, from impotent bonds to inverted yield curves to idiotic leaders. Here are Holly Mackay's thoughts on a weird week.

Thanks for all the feedback on our charges calculator. For those of you who missed it, we have launched a new calculator which allows you to simply compare charges between online investment services – and also to see how other investors (and us) rate these services. We’ve had thousands of visits and produced many thousands of comparison calculations. Please help us to spread the word if you have found it useful – referrals to friends really help us to grow. Two major industry providers have responded to our call for greater clarity of charges and we’re hoping to get more on board. Our message is simple – every provider should show every customer what they would be charged in £ terms for any given investment amount. No acronyms, no basis points, no complex fee schedules. Just a £ amount. We’re working away on this behind the scenes and will keep you updated.

Lower interest rates ahead

In other news, this week markets are digesting the news of our new Sub-Prime Minister. (Sorry. I still can’t quite believe it.) The FTSE took it in its stride – no surprises and no shocks. The European Central Bank announced yesterday it will be keeping interest rates on hold for now. But the boss Mario Draghi (was there ever a more Game of Thrones name for a banker?) did signal possible cuts ahead. The US “Fed” meets next week and a cut there is widely expected. Money is dirt cheap to borrow. Cash savers get stuff all. And that shows no signs of changing.

This matters for investors because bonds (basically just IOUs we take from the Governments and companies, with the hope of getting a bit more paid back at the end and some interest along the way) are a bit impotent. Adding fuel to the fire is that we have an ‘inverted yield curve’ which I always think sounds like something a gynaecologist should be diagnosing. But in fact it just means that you get paid more for lending a Government money for three months than you do for 10 years. This is weird. Normally we get paid more for lending for longer periods of time – there are more things that could go wrong over longer timeframes so we normally expect a higher reward for taking more risk. Not so today. Lower interest rates are on the horizon and a red flag is being waved – these inverted yield curves are generally a precursor to recessions.

So. We have impotent bonds, a proven liar for a Prime Minister, an inverted yield curve and even the sun’s gone in. Never mind folks. At least you can use our charges calculator to cheer yourselves up ;0)