By Kymberly Martin
NZ swap and bond yields closed down 3-4bps yesterday. NZ swap yields are still well within recent ranges.
The market prices around an 80% chance of a 25bps cut from the RBNZ in the coming 9 months. While we do not expect cuts, this is not unreasonable as precautionary pricing.
In the past couple of weeks, as NZ short-end swaps have been fairly listless, AU equivalents have dropped back toward all-time lows. This has seen NZ-AU swap spreads become less negative. For example NZ-AU 3-year swap spreads (-30bps) are now at their highest level since mid-2010.
Our NAB colleagues forecast a further 50bps cuts from the RBA and we forecasts RBNZ rate hikes from December 2013. On this basis, by early 2014 the gap between the two Banks’ target rates (currently 100bps) will have virtually closed.
The Fed’s Plosser caught the headlines in his speech overnight, saying the Fed’s new bond-buying program is unlikely to boost growth or hiring.
Lowering long-term interest rates “by a few more basis points” won’t spur growth he commented. (If indeed the policy does bring down long rates. The market now seems inclined to price higher inflation over the long-term as a result of the Fed’s prolonged easing). Plosser suggested the policy instead risks undermining the Fed’s credibility.
Through mixed US data releases overnight, US 10-year yields chopped around before returning to sit a little lower, at 1.69%.
Today, NZ trade figures will be released. We expect the figures will be sufficiently negative to keep the annual deficit expanding.
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1 Comments
Lowering long-term interest rates “by a few more basis points” won’t spur growth he commented. (If indeed the policy does bring down long rates. The market now seems inclined to price higher inflation over the long-term as a result of the Fed’s prolonged easing). Plosser suggested the policy instead risks undermining the Fed’s credibility.
If inflation were to rise the Fed would be relieved.
It's a long time since the Fed cut the Fed funds rate to 0.00 - 0.25% - 16th Dec 2008 in fact.
As the lonely voice of Anatal Fekete has noted in the past.:
The predecessor article can be read here.
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