Sunday, 20 November 2011

Interest Rate Betting - No Change in December is Odds On

In addition to the futures and overnight index swaps market providing opportunities for market participants to “bet” on the next RBA interest rate move, my friends at Centrebet, Sportsbet and the TAB offer betting odds on the next interest rate move. (Please let me know if you are aware of other bookies betting on the interest rate market.)

In stark contrast to the money market pricing which has a 25 basis point cut in December priced in with near certainty (and is even flirting with a possible 50 basis point cut), the betting odds have “no change” at 4.5% as the hot favourite for the December RBA Board meeting.

The table below sets out the latest odds:

Sportsbet TAB

Steady $1.53 $1.75

25bp cut $2.40 $2.25

50 bp cut $9.00 na

50 bp cut or more na $8.00

75 bp cut or more $16.00 na

For the moment, Centrebet have suspended their betting. They will have the odds posted a little later today.

So if you are believer that the RBA will hold rates, you can get a 75% tax free return with the TAB. Those (like me) thinking that the RBA will cut 25 basis points, Sportsbet are offering the prospect of a very juicy 140% return.

A cut of 50 basis points or more now seems very unlikely, making the odds offered in those markets looking way too skinny.

There are 15 more sleeps until the December RBA Board meeting. A lot can – and will – happen between now and then to see these odds change. If you can anticipate the trends in those interest rate risks, there are some nice profits to be made.

Please note, these views are my own and all comments are not investment or betting advice. Bet carefully and in moderation.

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