Air points are something that I view with deep suspicion. Airlines offer them. Credit card issuers hand them out. But when do you get to use them? In the case of Asia Miles (Cathay Pacific's mileage programme), the answer used to be very very seldom, My own personal experience was that it was pretty much a waste of time trying to redeem Asia Miles for a "free" flight and the best that could be hoped for (but not expected) was to use them for upgrades. My experience was far from unique.
The recession has brought with it a downturn in air travel. As a result, I am hearing increasing numbers of people say that they have succeeded in redeeming their Asia Miles for free flights at off peak times. My own recent experience in successfully using points for an upgrade was also met with a much quicker response than I have come to expect.
This is another example of their being some upside to the recession.
Wednesday, April 29, 2009
Tuesday, April 28, 2009
Mortgage refinancing
In December last year Hong Kong banks started raising mortgage rates. Prime linked mortgages were offered at higher margins than had been seen for some time and most (if not all) banks stopped offering HIBOR linked mortgages. Lending criteria were also tightened. At the time I speculated that Hong Kong may have seen the end of cheap mortgages .
In the space of four months I have been proven wrong with several banks again offering HIBOR linked mortgages. The terms are not as good as what was offered during the peak of the mortgage wars in 2005/6, but are still better than some of our existing mortgages.
The best deal I have found so far is from Standard Chartered which is offering what amounts to HIBOR + 0.8%. Importantly, they are offering borrowers the option of fixing using the 1 month HIBOR (or longer if wanted). Given the shape of the yield curve this works out at nearly a whole percentage point below what we are currently paying on our home mortgage and on one of our investment properties (about 1.2% pa).
Running the numbers for refinancing at this level would suggest we could either:
(i) keep the payments at the same level and cut the term of both mortgages by about 18 months for one mortgage and and 21 months for the other;
(ii) keep the term the same and reduce the payments, freeing up the difference for other investments.
Given that I can find plenty of relatively low risk investments with much better yields than the interest payable on the mortgage, (ii) looks the better option. (If I wanted to push this line of thought, I would extend the term to take maximum advantage of the arbitrage opportunity.)
The problem is that there is a mismatch between the exposures to changes in interest rates. The mortgage rates are (very) short term and could increase. In fact, over the term of the mortgage, I would be surprised if we do not have higher interest rates at some point. In contrast, the term of the alternative investments is fixed for longer terms (decades for some long bonds) or carries principal risk (in the case of equities). In addition, rising interest rates often result in lower capital values for both debt and equity investments, meaning that responding to rising interest rates by selling assets to repay the debt is not always an attractive option. Given that I will be carrying these mortgages into retirement, this is not a trivial risk.
That said, there is no downside to doing the refinancing. The only question is the extent to which I wish to trade off a shorter repayment period against improved cash flow.
In the space of four months I have been proven wrong with several banks again offering HIBOR linked mortgages. The terms are not as good as what was offered during the peak of the mortgage wars in 2005/6, but are still better than some of our existing mortgages.
The best deal I have found so far is from Standard Chartered which is offering what amounts to HIBOR + 0.8%. Importantly, they are offering borrowers the option of fixing using the 1 month HIBOR (or longer if wanted). Given the shape of the yield curve this works out at nearly a whole percentage point below what we are currently paying on our home mortgage and on one of our investment properties (about 1.2% pa).
Running the numbers for refinancing at this level would suggest we could either:
(i) keep the payments at the same level and cut the term of both mortgages by about 18 months for one mortgage and and 21 months for the other;
(ii) keep the term the same and reduce the payments, freeing up the difference for other investments.
Given that I can find plenty of relatively low risk investments with much better yields than the interest payable on the mortgage, (ii) looks the better option. (If I wanted to push this line of thought, I would extend the term to take maximum advantage of the arbitrage opportunity.)
The problem is that there is a mismatch between the exposures to changes in interest rates. The mortgage rates are (very) short term and could increase. In fact, over the term of the mortgage, I would be surprised if we do not have higher interest rates at some point. In contrast, the term of the alternative investments is fixed for longer terms (decades for some long bonds) or carries principal risk (in the case of equities). In addition, rising interest rates often result in lower capital values for both debt and equity investments, meaning that responding to rising interest rates by selling assets to repay the debt is not always an attractive option. Given that I will be carrying these mortgages into retirement, this is not a trivial risk.
That said, there is no downside to doing the refinancing. The only question is the extent to which I wish to trade off a shorter repayment period against improved cash flow.
Monday, April 27, 2009
USD/NZD FX contract renewed
Last month's USD/NZD FX contract was exercised against me. The strike price was USD1.00 = NZ$0.5756. Based on the prevailing spot rate this morning (0.5644), the loss on conversion was actually marginally less than the premium earned.
I have entered into a new contract as follows:
Currency pair: NZD/USD
Strike price: 0.5756
Spot price: 0.5644
Maturity: 27 May, 2009
Fixing date: 26 May, 2009
Implied yield: 11.375%
In effect I have written a slightly out of the money put option on the USD with a lower implied yield.
I have entered into a new contract as follows:
Currency pair: NZD/USD
Strike price: 0.5756
Spot price: 0.5644
Maturity: 27 May, 2009
Fixing date: 26 May, 2009
Implied yield: 11.375%
In effect I have written a slightly out of the money put option on the USD with a lower implied yield.
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