By Kymberly Martin
NZ yields pushed a bit higher yesterday, steepening the curve in the process.
Overnight, US 10-year yields traded between 1.77% and 1.80%.
NZ swap and bond yields crept higher over the course of the day. NZ 10-year swap closed up 5 bps, at 2.97%, with the 2-10s curve ticking up to 69 bps. Meanwhile, 2-year swap closed up 3 bps, at 2.28%.
The market now prices that the OCR will be cut to a trough around 1.90% within the year ahead. But we believe it under-prices the risk of a cut next week, assigning only a 20% chance to this possibility.
Yesterday’s RBA Minutes, from the most recent meeting, characterised the current policy stance as being “very accommodative”. Previously the Bank has referred to it being just accommodative. The Board also said it will “reassess the outlook for inflation” and also “decide whether the improvement in labour market conditions evident last year was continuing”. The subsequent strong employment report will likely give them some comfort in that regard. The market prices the RBA’s cash rate to be cut toward 1.80% within the year ahead, from its current level of 2.00%.
Overnight, from a speech in New York, RBA’s Stevens shared some home truths. While discussing recent tinkering of central banks with negative interest rates and other inventiveness, he posited whether central bank policy had reached its limits. He said, “it is surely time that policies beyond central bank actions did more”. He commented that “helicopter money is surely not needed” and accepted that “monetary policy alone hasn’t been, and isn’t, able to generate sustained growth to the extent people desire”. Meanwhile, he said that central banks should be mindful of asset price rises and leverage levels. This all sounds fairly pragmatic to us, though we are not sure heads of other key central banks will necessarily heed the advice.
Overnight, whilst the WTI oil price extended its rebound, and equities made modest positive returns, US 10-year yields traded a relatively tight range. US 10-year yields trade at 1.78% currently.
The 3.8% increases in average prices at the overnight GDT dairy auction may underpin the short-end of the NZ curve at the open today.
Daily swap rates
Select chart tabs
Kymberly Martin is on the BNZ Research team. All its research is available here.
2 Comments
More signals to identify the fundamental failure of Friedman's "Free Market" economy. Time for Governments to regulate the markets and put the brakes on the greedy, rich and powerful. They won't do it. It'll mean they'll need to look in a mirror and recognise their own corruption.
The problems started long before Friedman but Freidman was one of the final nails in the coffin
Between 1775 and 1913 Americans fought numerous battles to rid themselves of central bankers, e.g. Jackson, Lincoln, Garfield.
http://www.history.com/topics/bank-war
In 1913 the central bankers finally won, and that is one of the reasons the world is in such a mess now.
Governments are servants of bankers and corporations and will NEVER tackle any of the fundamental inconsistencies in the banking system. That is why everything will be made progressively worse, until it all 'implodes', probably via energy depletion and environmental collapse, though negative interest rates may bring the house-of-cards down.
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.