By Kymberly Martin
NZ short-end yields have started the year creeping a little higher. Meanwhile, US benchmark 10-year yields flirt with the 3.0% level.
After fairly quiet trading over the festive season, NZ 2-year swap has started the year by pushing up to a new cyclical high of 3.87%.
The market continues to price more than a 50% chance of an OCR hike at the end of this month. We think this would be inconsistent with the RBNZ’s previous communications and rather see March as the likely timing for the first rate hike.
The market prices 125bps of rate hikes by the end of the year. That is consistent with our own view.
The 2-10s swap curve has flattened to 143bps, the lows of its range of the past three months, as long-end swap yields have traded more of a sideways path, in recent days. In the year ahead we see this curve flattening to a trough below 80bps.
Swap-bond spreads have declined from their spike higher in mid-Dec but remain elevated compared to recent months. NZ 10-year bond yields trade at 4.73%. On spread to US and AU equivalents they sit at 173bps and 50bps respectively. This is well down from Sept-Oct highs on spreads.
We believe NZGB supply constraint, as outlined in the Dec HYEFU, should help the performance of NZGBs even in a rising OCR environment.
Over the past couple of weeks, US 10-year yields have pressed higher to the top of their range. They are currently flirting with the 3.0% level that marked their peak in September.
It will be a quiet holiday-induced week on the NZ data front. Ahead of the January 30 RBNZ meeting the key domestic data releases to look out for will be Q4 CPI (21 Jan), BNZ PMI (23 Jan) and BNZ PSI (27 Jan).
Offshore it is a relatively quiet start to the week, but with plenty to look out for toward the weekend. The Bank of England and ECB both announce rates on Friday. The market will also be heavily focused on Friday night’s US nonfarm payrolls release.
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12 Comments
Sydney City housing rose 10% over 2013.
House prices still rising strongly in Australia -
Asking Bankers what they believe the direction the OCR should move is like asking two wolves and a lamb what they should have for lunch.
Why not have a period of sustained growth, why as soon as any predicted sign of growth is recognised on the horizon certain groups want to slow down New Zealands recovery.
Any rise in the OCR and the follow on of increased commercial overdraft rates and increased mortgage rates will send most recovering businesses and some home owners into a debt position that cant be sustained.
If theNew Zealand economy was a patient and had just started to recover and respond well to care doesnt mean you turn down the oxygen and limit medication.
Over Christmas had many stimulating discussions, one elderly or very senior gentleman who has had many more decades to ponder asked all at table, why not keep interest rates fixed for another year,let New Zealand get up out of the bed and actually Run without the people being hampered by high or even rising interest rates. What would be the consequience? seriously forum what would be the outcome of another gauranteed year of no change to OCR,,,sure banks would de-couple,but the resrve bank Governor could pull them back into line.
Previously the excuse of Housing Prices increasing has been utilised, many times a comparrison to Australia not having super rising house prices,,Thats because Australia does not have a supply issue, they build enough houses per annum to house both population increases and immigrants. New Zealand Does not currently build enough homes for domestic population growth without taking in to account that about a billion people would put there hand up worldwide to live in New Zealand in a heartbeat.
Until the powers at be stop throwing every excuse and every other option that doesnt involve building houses and stop kicking the can down the road with reports and enquiries and actually start encouraging developers to want to begin building mass affordable homes then house prices are going to keep climbing.
in the Productivity commission report it states that it costs 20% more to build a home in Auckland than in Melbourne. so there fore you obviously cant build affordable homes in Auckland because a key componet has increased in price,,LAND.
the Price of Land has increased because of the burden of costs applied by the regulatory process and also a big lump of GST .
Asking a developer who has just gone through 18 months of gauging by consultants and councils ,he wants to maximise his return so no real chance at affordable.
i say wait until growth and house construction numbers have reached population growth equilibrium then when as a country we can physically see real crystalised growth then apply some reins but for now dont touch the bridle.
Irrespective of what we all thing, if the Banks get a sniff of an opportunity to raise interest rates they will. All the economic indicators point to a significant rise in interst rates in the next couple of years. So if you havent fixed - do so and buckle in tight for the tumultuous ride of your life! Fortunately I am nearing the end of my mortgage term, and I pity those that have large mortgages going into the next decade, however as we know its all relative, and there will be no cheaper time to buy than now.
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