By Kymberly Martin
There was a modest rise in NZ swap and bond yields yesterday, following the cue from offshore.
Overnight, US yields failed to push higher. Instead, US 10-year yields consolidated between 1.76% and 1.79%.
NZ yields pushed a little higher from the open yesterday, with NZ 2-year swap closing at 2.25%. The market has slightly reduced its expectation for RBNZ rate cuts in the year ahead. It now prices a trough in the OCR around 1.89% i.e. 36 bps below current.
Yesterday’s, food price release for March (+0.5%) was a bit higher than we had expected but not quite enough to push up our estimate for Monday’s Q1 CPI release. We finalise that at +0.1% q/q or +0.3% y/y. There is now a little more upside risk to our forecast than downside. But this does not translate into more upside risk to the RBNZ’s near term inflation view. The Bank forecast +0.4% y/y for Q1 CPI inflation in its March MPS.
A positive day for Asian equity markets (which was likely helped by China trade data not producing any nasty surprises) was followed by a very strong night for European equity markets and credit spreads. As European equities galloped higher, however, German bond yields moved in the opposite direction. From evening highs above 0.17%, German 10-year yields now trade below 0.13%. Meanwhile US equivalents have also slipped from intra-night highs above 1.79% to 1.76% currently.
There was no change to the Bank of Canada’s cash rate overnight, as expected. While it raised its GDP forecast for 2016 (1.7% from 1.4%) it cut its 2017 forecast (2.3% from 2.4%). The Bank noted that positive economic forces are starting to outweigh the negatives. But it does expect deeper cuts in energy sector investment than it had forecast in January.
Today we have the NZ manufacturing PMI to look out for but the local highlight will be the release of the AU employment report this afternoon. Our NAB colleagues have warned of the potential for a very strong employment print, partly attributable to data sampling issues. Ahead of this the market currently prices around 25 bps of RBA cuts within the year ahead.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
16 Comments
or downsize and reduce the debt, it amazes me the amount of people with small mortgages that keep paying the bank rather than rip into it and get rid of it. I guess I grew up in a different world where to owe money was a bad thing
http://money.usnews.com/money/personal-finance/articles/2012/04/26/the-…
I was brought up to not owe money on anything. It is sensible to get a mortgage to buy a house, even back in the days before housing price inflation took off. The thing is people do not know how to correctly use those debts. Part of my mortgage was in floating rate. The way to use floating rate is to pour money into the account until it is paid off, that minimises the total interest paid but still leaves flexibility for cash flow. Yet some people have their whole mortgage on floating when they don't plan on selling or to repay the entire sum in a year or two.
I encouraged one person I know to at least fix part of the mortgage. Then ended up following my advice and are paying a lot less interest. Some are making bad decisions or not thinking about their finances or cash flow/budget.
e: you would be shocked to see the terrible debts and interest rates of the people I help online. Most can recover from their position but we had one recently that may have dug the debt hole too deep.
It's a casualty of corporate banking net interest margin defence policy on behalf of the parent banks' demands back in Australia. The RBNZ refuses to address the issue, probably in defence of financial stability which it's policies unraveled in the first place.
All of this is supposed to be capitalism at its finest. Central banks continue to undertake greater effort to restart a recovery that will not because banks will not and really cannot. That begins to answer why bank stocks have been under so much pressure as with global liquidity; there is a gaining realization that monetarism doesn’t work because financialism is not capitalism and thus requires an active monetary agent to be carried out. Monetarists claim that they are searching for and stimulating the “animal spirits” of capitalism but that isn’t true at all, with Italian banks providing all the necessary evidence. It is the “printing press” that they seek and it is not a central bank function even though many assume, still, that it is. Read it again
He (Wheeler) needs to push Yellen to enact earlier promises and chide her for avoiding her duty to normalise interest rates after many trumpeted economic stimulus programmes. But I doubt interest rates have much to do with currency pair pricing. NZD/JPY has collapsed over recent weeks. Other factors such as potential capital gains in derivative structures play a bigger part in arbitrage decision making, especially when it involves scarce eurodollar funding.
because low interest rates the world over have distorted asset bubbles taken away any risk and redistributed the wealth away from the middle classes.
we now have a culture where debt is good quick jump on the band wagon take as much on as you can and buy as many assets as you can, dont worry about paying it back RB's are too scared to rock the boat and stop the maddness
steven... have u studied your history?
It is high levels of debt that are precursors to crises and depression..... not interest rates.
( An interest rate rise may be a trigger... but it aint the cause).
Open ur eyes....
At this stage, in NZ, lower interest rates is leading to increased debt levels...
Leads to boom bust asset price cycles..
Leads to malinvestment and mispricing of risk...etc ...etc..
(NZ is NOT at the point where people have a focus on paying down debt..... SO ..lower interest rates result in more debt )
Irony is... you are the one leading us ever closer to a depression...with your incessant call for lower interest rates..
time to revisit your underlying premises/paradigms... It is now 8 yrs since the GFC ...and where we are today is not what you envisioned ... ( and I have listened to what u have said since u first posted here )
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