10th August 2011: The Key Interest Rates That Affect Our Investments

Interest rates attract a lot of attention in every country and nowhere more so than in Australia. That's because most of our housing loans carry variable interest rates, and the growth of self funded (and often self managed) superannuation encourages many savers to keep a close watch on interest rates.

Mostly, it's housing interest rates that dominate attention and in public discussion. For a change, let's look at three key interest rates paid by the government sector (including the Reserve Bank): a short-term interest rate (the official cash rate on overnight money set by the Reserve Bank); a medium-term interest rate (the yield on a three-year government bond); and a long-term interest rate (the yield on a 10-year government bond).

Today's chart reminds us of the cycle in interest rates — but also that, generally, the longer the term of a loan or deposit, the higher its interest rate. But the spreads between short, medium and long-term interest rates vary over time, and occasionally medium-term or long-term interest rates fall below shorter-term interest rates.

Read the rest of the article here.

Source: The Australian