New Zealand interest rate swaps* were either at or close to record lows across the range on Wednesday in the light of global uncertainties and following on from the Reserve Bank's Official Cash Rate cut last week.
The rates have been pushed down this year by signs of a global economic slowdown and more recently the escalation of trade wars and the cutting by the RBNZ of the OCR from 1.75% to 1.5%.
On Wednesday the rates virtually across the board were slightly lower and with many of them therefore sitting on record lows.
Given that there's no short-term likelihood of New Zealand's official interest rates being raised - and indeed a further cut is seen as likely - the swap rates are likely to continue to sit at current levels, or lower.
Interest.co.nz charts the swap rates every day. Since the start of this month all the rates are around 10 basis points or more lower. The two year rate for example was down another 1bp point on Wednesday to a new record low of 1.58%, and it's down from 1.68% at the start of the month.
Westpac market strategists in their morning report on Wednesday said with the RBNZ having cut the OCR they now saw the OCR on hold for some time, which should keep the two-year rate inside a 1.5%-1.7% range.
But others see rates potentially going rather lower than that, particularly if the RBNZ does cut the OCR again.
Of all the major bank economists, the Kiwibank team were the most certain and definitive ahead of time that the RBNZ would cut the OCR last.
"I think the RBNZ will cut again to 1.25%," chief economist Jarrod Kerr says and he says the risk beyond 2019 is towards another cut or two.
"Short end swap rates 1-3 years should be held down by another RBNZ cut and the risk of more. Another cut by the RBNZ is almost fully priced in by the market. Although I expect the cut to be delivered sooner than market expectations.
"The pivotal 2-year swap rate should trade down to 1.5%. If conditions deteriorate, I’d expect a 1.3-to-1.5%," he says.
Kerr adds that "of course", any trade deal struck between the US and China would see interest rates rise - but even then he believes this would be only temporary.
What all this will mean for mortgages remains to be seen, with banks having been reluctant so far to pass on much of the 25bps reduction in the OCR.
As the Kiwibank economists pointed out last week, however, the RBNZ will monitor how much of the 25bp cut is passed onto borrowers and savers. If not all of the 25bps are passed on, the chance of another cut increases.
*An interest rate swap is where two people, or parties, agree to exchange two different types of interest rate for a specified period of time. NZ interest rate swap rates are determined by the rates on NZ government bonds and the demand for paying or receiving the fixed rate. A gauge of the level of demand is the difference between the NZ government bond rate and the swap rate, known as the "swap spread".
The major influences on the level of demand are corporate borrowers (who have floating rate borrowings), banks (who also want to match fixed rate mortgages against their floating rate borrowing) and issuers of fixed rate NZ$ bonds, who typically want to pay the fixed rate.