by Kymberly Martin
In contrast to some sharp moves in recent days, NZ markets were fairly quiet yesterday.
Swap yields closed little changed. The 2-year sits at 2.51%, a little above its early May lows.
The market now prices around 30bps of RBNZ rate cuts by the end of the year.
The 5-year swap sits close to its all time lows at 3.08%. Current swap yields are consistent with an OCR that remains at, or below, 2.50% until mid 2014, and that eventually peaks at 3.50% in around four years time.
We believe that the OCR will be higher than this over the period. We therefore see value in hedging interest rate risk at current low yields. We continue to believe it is unlikely the RBNZ will cut interest rates.
NZ bond yields closed down 1-2bps, at historic lows. The DMO auction for today has been announced at 200m of NZGB23s. In light of insufficient demand at last week’s auction the DMO appears to now be targeting the long end of the curve. Here, yields are at historic lows, but are still the highest yield on the curve (NZGBs at 3.63%).
In addition, these NZ 10-year bonds yield 41bps more than AU equivalents, which should help support demand. This is particularly relevant given a high proportion of NZ Government bonds are held by offshore investors – as reinforced by yesterday’s news foreign holdings of NZGBs had picked up from 61% to 62% in April.
Overnight, the US FOMC released its minutes. They showed that “several” members suggested additional monetary policy accommodation could be necessary if the economy lost momentum.
They also confirmed they would continue “Operation Twist” (selling short-dated bonds to buy longer-dated bonds) until fruition at the end of June.
US and German “safe haven” yields showed only limited response to the minutes returning to trade around 1.76% and 1.47% respectively. German yields sit near historic lows.
Spanish-German bond spreads remain close to their widest levels as we approach a Spanish bond auction tonight. This will be an important test of appetite for European sovereign risk as uncertainty reigns in the lead up to Greece’s re-election on June 17.
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8 Comments
The market now prices around 30bps of RBNZ rate cuts by the end of the year.
Just who or what is the market in this instance?
The same institutions that want to continue the transfer of wealth away from those that remain solvent to those that certainly are not and yet get to borrow the most so certain institutions can keep clipping the interest rate margin ticket?
This is not an employment or economic growth strategy - it's the road to destitution. - and is the reason why rates have to continuously seem as though they are falling on the deposit side of the ledger and yet remain relatively elevated on the asset ledger. Real interest rates are going through the roof as the economy collapses due to insufficient productive investment.
Hence the logical statement:
The DMO auction for today has been announced at 200m of NZGB23s. In light of insufficient demand at last week’s auction the DMO appears to now be targeting the long end of the curve. Here, yields are at historic lows, but are still the highest yield on the curve (NZGBs at 3.63%).
In addition, these NZ 10-year bonds yield 41bps more than AU equivalents, which should help support demand. This is particularly relevant given a high proportion of NZ Government bonds are held by offshore investors – as reinforced by yesterday’s news foreign holdings of NZGBs had picked up from 61% to 62% in April.
What a shambles and the spinmeisters purposefully direct us to every irrelevant direction but this.
Do we end up a bit like Japan but without the exports?
http://www.zerohedge.com/news/japans-wtf-chart
and this
http://www.zerohedge.com/news/canary-gold-mine-historic-move-japanese-p…
The plan is well rehersed and understood;
http://en.wikipedia.org/wiki/Accumulation_by_dispossession
What we need is a political leader prepared to admit it, make it his/her place to expose it, and reverse it.
It's so blatant and in 'our face' and yet the perpetrators show no remorse or shame.
Thus, I guess there is little hope the right political leader will miraculously appear to rectify the situation - there are similarities to the finance sector blow-up, but in fact more pernicious in that the losses collectively will be magnitudes greater. .
Thanks Kate.
"These neoliberal policies are guided mainly by four practices: privatization, financialization, management and manipulation of crises, and state redistributions."
Maybe some of that here:
"Canterbury Employers' Chamber of Commerce chief executive Peter Townsend has called for a "thorough investigation" of potential asset sales to help fund the city's rebuild, instead of a rates rise and increased council debt."
It's a shame someone isn't calling for a "thorough investigation" into using reserve bank credit to help fund the city rebuild. When will an appropriate leader, politcian do this for the people of Christchurch?
And more to the point Les, it would not just be for the people of Chch, but indeed for all NZers. Chch may pay through local asset sales, but similarly so NZers are paying through national asset sales, though additional levies on our insurance and through increased borrowing and increased taxation coupled with the reduction of services ... the 'plan' is functioning completely in accordance with the prescription.
Stephen makes the point above about similarities to the financial sector failure here in NZ - and for me it's not just a similarity .. that dispossession was a calculated intention. Reduce the return on savings to the degree that normally 'low risk profile' individuals (the elderly) change their behaviour in search of a place to keep their surplus from a life of labour/earnings level pegging with the rate of inflation (inflation on the things they, with largely fixed incomes, spend money on - that being property rates, power, food and petrol).
It was the perfect motivator - low returns on retail bank deposits over a sustained period; the elderly watch their savings (surplus) erode, and they leave the safety of the bank deposit as a means to 'not go backwards'. The credit bubble bursts, they are dispossessed of their savings, they become more dependent on the State... and surprise, those that inflated the credit bubble in the first place didn't lose their shirts .. far from it, with a complicit regulator they chalk up record profits in the aftermath.
And as for the fine example of corporate tax-take in the US ... JK's Government has shown it's hand there in more than one example .. Warner Bros, Skycity .. he's lapping it up. Whether we dive headlong into corporate welfare is yet to be seen but a lead indicator will be the TPP - another instrument of the neoliberal prescription.
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