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BNZ sees a "greater risk the RBNZ will ultimately raise by more than the 200 bps"

Bonds
BNZ sees a "greater risk the RBNZ will ultimately raise by more than the 200 bps"

By Kymberly Martin

It was a quiet day in NZ markets given the Auckland anniversary day celebration and Australia day holiday.

NZ 2 and 5-year swaps sit at 3.79% and 4.48% respectively. 2-year is now around 10bps below its early-year highs, and 5-year about 25bps below this point.

New year Kauri issuance has helped apply receiving pressure at the mid-curve.

This part of the curve now appears less ‘expensive’ for payers. This is especially true if accounting for the risk the OCR ultimately peaks above the 4.50% we forecast.

We continue to see asymmetric risk around the extent of the rate hiking cycle ahead.

We see greater risk the RBNZ will ultimately raise by more than the 200bps which is our central forecast.

That said, we do not expect the RBNZ to raise the OCR this week. Rather we see it setting the stage for a first hike in March.

Overnight, while volatility persisted in emerging market currencies, and equities provided another round of negative returns, US Treasury yields stabilised. US 10-year yields traded a range between 2.72% and 2.76%.

They traded back toward the lower bound after the release of softer than expected US new home sales data for December (-7.0%m/m vs. -1.9% expected).

There are no local data scheduled for release today.  Focus across the Tasman will be on the NAB business confidence survey.

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2 Comments

Is 200bps of hikes believable?

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No, I think the RB said 4.75%?  so 225basis points? a 4.75% OCR in 2016 (end?)

So greater than this, say 6 or 7%?

I would suggest  that for this to happen the entire world will have to be on one huge economic boom and doing so inside 2 years, one huge rocket ride from dead in the water right now.

Pigs might fly.

To even contemplte this we'd have to see an abundant, cheap and compatible replacement for fossil transport fuels available, growing  at 2~6% per year to fuel such growth of 4%+.

No way in hell IMHO.

Lets be more realistic. I'd expect anything up to 100basis points inside the next 2 years (assuming no nasty hicups out there in a buggered economic world) just to try and control the craziness that is the housing speculation.  Then when something finally nose dives (ie serious deflation in say the EU) an imploding housing market and an OCR of <2% to try and prop it up.

NZ would be broke....but nothing like many other countries.

So simply I think the human aspect / actions will or could outweigh what the real thing is in the short term.  Such actions however will make things a lot worse in the medium term. 

In the long term our goose is already cooked,  weve ignored peak oil since 2005 and there is no time to fix it  now let alone the trillions needed, or the acceptance of the population to do it.

regards

 

 

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