Remarks recently from Rob Mead, Co-Head of Pimco Portfolio Management Asia Pacific:
- Australia is fast approaching the subprime cliff for fixed rate mortgages
- It will put more pressure on families and the economy
- (Fixed rate loans) … reached nearly 50 percent in mid-2021 … by the end of 2023, more than 50 percent of outstanding fixed-rate mortgages with the Big Four banks will have carried over . This translates to about 17 percent of all home loans.
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“We are now at the absolute peak of those shifting mortgages. This is important because most of these loans would have had an interest rate attached to 2.5 percent, and so when you move into a floating rate area, a rate between 5.5 and 6.5 percent will be applied.”
- “So that cliff is very strong and certainly something that the RBA will be looking for. It will certainly be a driver of how tight monetary policy needs to be going forward.”
(Note. “Cliff” fixed rate loans is not a new idea, it is a widespread discussion point in Australia and has been for several months now)
As for his view of the economy:
- “The idea that interest rates will miraculously fall and that we will miraculously have a soft landing, we think is a fool’s paradise,”
- Stagnation is now our basic state.”
Earlier, a similar view of the United States:
