With inflation potentially peaking and five-year bond rates coming down hard, mortgage shoppers have one question for banks: Where are the fixed-rate cuts?
After all, rates in the bond market have dived back to earth since their June 14 peak. And bank funding is largely linked to the bond market.
But so far, fixed rates haven’t followed bond rates down.
Here’s why, say bankers …
With rates rocketing last quarter, banks’ funding and hedging costs soared even more, squeezing their profit margins. These “spreads,” as banks call them, only started improving materially in the past couple of months.
Big Five banks all have profit-margin forecasts. They’re now trying to make up lost margin to get closer to their targets. That’s especially true with markets pricing in recession, which should drive more credit losses.
So, in other words, banks are in no rush to pass through funding…