By Kymberly Martin
NZ short-end swaps unchanged, while long-end swaps declined.
Overnight, US 10-year yields traded lower in volatile trading.
The RBNZ delivered on expectations yesterday morning.
It maintained a very even-handed assessment of the economy and explicitly stated that it is now neutral.
It lowered its 90-day bank bill track to show an entirely flat trajectory at 3.70% out to the end of its forecast period in March 2017.
In comments, Governor Wheeler stated that although the Bank is very mindful of risks from sharply appreciating house prices, this is strictly from a financial stability perspective. It did not influence the Bank’s monetary policy decision.
Expect further work on alternative tools to address the housing market.
The rates market’s response was very muted. While 2-year swap traded a 2 bps range on the day it closed unchanged. Meanwhile longer-dated swaps declined in the afternoon alongside AU counterparts. 10-year closed down 3 bps at 3.84%.
Yesterday’s AU employment data that came in not far from expectation produced some initial volatility in AU short-end rates, but little enduring impact. The market continues to price around 50 bps of further rate cuts from the RBA by year-end. Our NAB colleague’s central forecast is a next 25 bps cut at the May meeting.
US 10-year yields gapped lower in the early hours of this morning after the release of softer than expected retail sales data. However, from intra-night lows close to 2.04%, US 10-year yields have grappled their way back to 2.08% currently. Meanwhile German equivalents climbed steadily from 0.19% to 0.25% overnight.
This afternoon the NZDMO will auction NZ$300 mln of 2027 bonds. We expect good demand given pending NZGB maturity and coupon payments, and that NZ-AU 27 spreads are currently in the upper-band of recent ranges.
Daily swap rates
Select chart tabs
5 Comments
Is the RBNZ desperate?
Since the LTVR rules started , the effect has beeen the complete opposite to what was intended ......... the property market is more bouyant than ever .
The latest RBNZ proposal to slow the housing market does not stand a snowballs chance in hell of doing whats intended , without huge peripheral damage and unintended consequences .
Just look at the LTVR ratio rules , which have beeen a dismal failure , prices have actually accelerated faster since the rules came into effect .
The only effect of the LTVR is that young Kiwi familes without $120 000 to $200,000 in cash have been removed completely from home ownership.
The unintended consequence is the house auctions of the most modest Auckland houses are practically a 100 % Asian affair .
When a Hong Kong resident can borrow from HSBC against Hong Kong assets at 2% to buy property here and the Kiwi requires $160 k upfront and borrows at 6,25% , Kiwis are out of the game completely
For those in the game already , they can fix mortgages for a fraction more than the OCR .
We do seem to be sleepwalking into selling Auckland to China and Korea. No doubt a fair few farms as well. I'm not sure how the current account deals with such transfers, but assume it ignores them. I suspect our economic "growth" and current very nice lifestyles as a country, are being paid for by selling of these assets. The party has to stop eventually you would expect.
Some questions arise:
While for the most part I personally welcome our new residents, will the second generation's first loyalty be to NZ or to China/Korea; and to New Zealanders generally, or to ethnic Chinese/Koreans?
What is the underlying source of the funding of these purchases? AEP on US$9 Trillion of debt, much held in Asia. If the NZD devaluation that Wheeler wants but does not act on, actually occurs, will there be stresses for some owners who have debt funded purchases with foreign currencies? What effect would that have on property here? Does that matter?
Many questions on monetary policy, exchange rate management, capital management ,transport and infrastructure management, city vs country, NZ Inc's business model etc. The answers could for the most part be positive, but it is not obvious they are being actively managed in any way.
I see no reason why new residents will follow the same pattern as always. The original colonists are loyal to the mother country....and still are...(as they follow mum into her battle with ISIS) ....The new residents will be the same....loyal to the mother country. Which will of course be interesting if we have to choose our preffered mother one day.
This afternoon the NZDMO will auction NZ$300 mln of 2027 bonds. We expect good demand given pending NZGB maturity and coupon payments, and that NZ-AU 27 spreads are currently in the upper-band of recent ranges.
And the on-going RBNZ OMO related goverment bond repurchases of the 2015 tranche.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.