By Kymberly Martin
NZ swaps pushed another 7-12bps higher yesterday, albeit in thin conditions. The curve steepened. Overnight, the push towards higher yields continued.
NZ 2-year swap (3.53%) has now almost completely factored in our OCR trajectory i.e. a first 25bps hike in March next year with gradual rises to a 4.50% peak in mid-2015. 5-year swap has now pushed above what we consider to be ‘fair value’ based on our OCR forecasts.
However, there remains reluctance in the investor market to receive swap against the persistent flow from the mortgage book. While the mortgage curve still remains relatively flat this flow could continue, pushing swaps above ‘fair value’ across the curve.
Yesterday’s DMO bond tender was fairly soft. Although the auction attracted solid bidding, with a 2.7x bid-to-cover ratio, overall demand was tepid. There was a wide 10bps range of successful bids. Bond yields closed up 7-13bps across the curve, with a steepening bias.
The theme was continued overnight with the sell-off in US Treasuries. The wide array of US data releases last night were a mixed bag. However, the bond market appeared to be looking for excuses to sell-off. It seized on the better-than-expected US weekly jobless claims (320K vs. 335K expected), the lowest reading since early 2008.
US 10-year bond yields burst through the top of ranges, to as high as 2.82%.Later they pulled back to 2.76% as subsequent data fell below expectation and political tensions in Egypt were seen rising.
German 10-year yields sit 8bps higher this morning at 1.88%, their highest level since March last year. The moves have been mimicked overnight by Aussie bond futures. Expect some further push higher in NZ yields today, with a steepening bias.
There are no domestic data today.
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3 Comments
This is not a slow motion train wreck - ask Mr Gross how it feels? I wonder if Mr Wheeler can be tempted to flatten the curve or at least 'taper' the rate of curve steepening? Those sovereign wealth funds will be glad of the relative short term refuge they enjoyed in Australia - but not for much longer.
The good news is the NPVs of over the top pension liability forecasts will be significantly lower, as will all other terrible liabilities the government likes to present us with when about to further privatise that which remains profitable.
Stephen, Yesterday you wrote this
Yes, I agree and the risks BNZ impose upon unsecured depositor's capital needs to be clearly stated in a preface to anything BNZ employees wish to present in their criticisms of the RBNZ and general NZ banking practices. Read more
Moody's downgraded the credit ratings of New Zealand's big four banks by one notch to Aa3 from Aa2 in 2011. Yu noted that a key factor in the downgrades was dependence on wholesale funding. Moody's estimates the big four, on average, source 37% of their funding from wholesale - both short-term and long-term - sources, with this including money sourced from their Australian parents.
"In all our research we continue to highlight that the New Zealand banks' level of wholesale funding is a key constraint on the rating," said Yu. "They (the banks) have improved their position (since 2011), but even with this improvement, the banks' levels of wholesale funding is still a key concern."
In January Moody's highlighted that, at more than 140%, the New Zealand banking sector hasthe highest loan-to-deposit ratio out of 13 Asia-Pacific countries. Of the big four banks, S&P figures as of December 31, put ANZ's at 135.9%, ASB's at 136.6%, BNZ's at 162%, and Westpac's at 147.4%. Kiwibank's was 109.9%
Meanwhile, Yu said the Reserve Bank's potential use of macro-prudential tools, and possible move to increase the amount of capital the big four banks must set aside to cover potential lossesfrom high loan to valuation ratio home loans, in attempts to slow credit growth, were both positive initiatives for the banking sector.
And let's be clear - the hedged and thus collateralised foreign wholesale borrowings are by design exempt from receivership claims, thus placing the risks of insolvency directly upon depositors, shareholders and other unsecured lenders.
I hunted around because i was getting a bit sick of always posting the same stuff on ponzi schemes by Greg pytel
I found these two articles from 2010
http://www.smh.com.au/business/do-our-banks-have-an-achilles-heel-20100726-10s30.html
then this,
http://www.smh.com.au/business/bank-headlines-you-wont-want-to-see-20100728-10vkw.html
I dont think our situation has improved over the last 3 years.
Banks’ loans-to-deposits ratio
http://cib.natixis.com/flushdoc.aspx?id=63556
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