This is a short transcript from a YouTube interview (YPS Club March 2024) where guest Peter Wargent explains how to use financial-market pricing (e.g., government bond yields, ASX/RBA Rate Tracker) as a more reliable guide to future interest rates than media or individual economists. He demonstrates the ASX/RBA rate tracker live, noting markets implied a cash rate around 3.6% in ~18 months versus the then-current 4.35%, and gives a COVID-era anecdote where markets priced a ~3.35% cash rate while the actual cash rate was near 0–0.1%.
Questions this video answers
4.35%
About 3.6%
Markets priced ~3.35% while the cash rate was 0–0.1%.
Chapters
There's too many talking heads these days in the media. So each of the major banks will have a chief economist and then you've got the doom and gloom YouTube channels and then you've got all this other stuff. The best thing to do if you're not sure, apart from follow us of course, is to just look at what financial markets are pricing, you know, because that is really the weighted average of all the views out there. And you won't go too far wrong. Of course markets are not always 100% right, but you'll get a pretty good idea. So if you look at it as at today, what markets are pricing for the cash rate 18 months from now, it's about 3.6% and today's 4.35. Now it won't be accurate per se, but it'll be a lot. It's a much better sort of North Star, if you like, of or I guess it's a better indicator to follow than what somebody's telling you with an opinion because usually you find that people have got an opinion and it's supported by a bias of some description. So if you're selling YouTube clicked, it's usually doom and gloom, the end of the world, because people more likely to click on that sort of thing. Major banks tend to take a very conservative or middle of the road view because that supports their sort of bank profitability. But yeah, as I say, I mean it's really easy to look this stuff up. You can look up either government bond yields, it's an easy thing to look up, that's a really good indicator. Or simply if you just Google asx, RBA rate Tracker.
RBA rate tracker. Let's do that live.
And we'll just see that'll be updated every single day like at the close of business. And that will give you like a really simple sort of outlook. You know, what's the likelihood of interest rates changing next month, but more importantly what a market's pricing over the next 18 months. And you'll see that yes, interest rates will probably be flat for a while. Most likely they'll start falling at the end of the year and 18 months from now will be some way lower. So, you know, of course, like things can change, but it's a lot easier to just follow what markets are saying rather than, you know, opinions because everyone has their certain biases and narratives that they're trying to spin.
And I mean just to that, let me just pull this up so we can have a quick little look at what you're talking about. I mean, as you said, all I did here was just Google asx. Let me put it over here so we can actually see it. Let's see what we've got here.
Yeah, so if you scroll down, you'll get a more. An easier graphic to look at. There you go. So this is a. Hopefully I haven't said the wrong thing now, but if you look. So the blue line there is where the cash rate is today, 4.35%. And if you look at the blue bars, that's what markets are pricing over the coming months. So each blue bar represents a month and this will be updated daily. So if you look 18 months from now, where are we about. If you hover over it, it'll even tell you about 3.6 ish. Yeah, so there you go. I would say rather than wasting too much time following chief economists or doom and gloom websites or property sprints rooking seminar, you know, you know the types where people are telling you that you know the next boom's always just around the corner. This will give you a much more considered guide because it's not really opinion based, this is market based. And markets are usually pretty accurate. Out of interest, during the COVID period, I spoke at an event down at in Melbourne where there was Bob Carr, Stephen Kukulis and a few others. And markets at the time, the cash rate was 0 or near enough. It was 0.1% and markets were pricing for a cash rate target of 3.35% over the next 18 months. At the time it seemed impossible. You just thought, no, they're never going to hike that many times. And yet here we are today and we've actually gone above and beyond it. It just shows. Markets are usually pretty good. They're usually more accurate than most commentators and it's a lot better than getting caught up in narratives that.
