Shipowners Take Cautious Approach to Fixed Rate Swaps

The recent downturn in short term interest rates poses both a dilemma and a window of opportunity for ship-owners. As indicated in the last issue of Marine Money, they are at their lowest level in over four years. Indeed, according to Citibank, three month LIBOR at 6.06% is at its lowest level since 1987, when rates dropped to a ten to fifteen year low. When assessed in an historical perspective, the argument that they can only go one way – upwards – seems to be a strong one.

This view has been implicit among a cross-section of banks canvassed by Marine Money, although there are those who hold an opposing viewpoint and, inevitably, a number of non-believers. Paul Ward, Financial Engineering specialist at Citibank, articulating the bank’s current thinking on interest rates, said “We expect US short term interest rates to rise, and long term rates to fall between 0.5 and 0.75% between June and September.” The five-year rate was quoted at 8.43% by the bank.

The fall in long term rates may be manipulated by the US Government in an effort to stimulate exports by reducing the value of the dollar, according to Citibank. Conversely a rise in short term rates may be expedient to curb a rise in inflation in the event of a credit boom. However, Mr. Ward conceded that there was a body of opinion arguing that the US would not allow long term rates to fall out of kilter with rates in the rest of the world for fear of exacerbating the budget deficit.

This is only an excerpt of Shipowners Take Cautious Approach to Fixed Rate Swaps

Content is restricted to subscribers. To continue reading please Log-In or view our subscription options.