Registered: Dec 2011
01-11-12 12:12 PM
Im not quite sure I understand the foreign currency bank example, how that would impact Australian bank rates, as retail banks are fully hedged most of the time so as not to risk falling out of line with the other lenders.
Taxes are a good point, capital gains tax would mean that rising rates (and therefore short bonds) would lead to an additional charge, but were rates to fall (less likely in Australia, but more likely here than in the US) then there would be a CGT gain to be made. This could be compensated for by adding to a profitable futures position (additional profit to help offset tax) and reducing a losing (rates going down) position to reduce the tax benefit.
Certainly makes it trickier, looks like www.pimmtrading.blogspot.com needs a part 2.
For the record, I would personally take the fixed rate, as the time it saves through not worrying about all this, and what is undoubtedly a low rate with a long term view, makes it preferable in my eyes.