Soft wholesale rates change the expectation for rising mortgage rates

The markets are not convinced more OCR rises are coming at the rate the RBNZ forecast in their last Monetary Policy Statement.

The 90 day bank bill rate is now softening, raisng the margin banks earn on floating rates.

Swap rates are also falling, but lenders are not reducing their mortgage rates at the same pace.

Behind these rate falls are an economy that is growing much slower than anticipated, and the largest section of our economy, the housing market, showing increasing signs that low volumes may be about to reverse the slight rise in median prices that have occurred in 2010 so far.

Not only have wholesale interest rates continued their four month falling trend, but yields on Government bonds have also tracked down over this period.

Concerns about the strength of the 'recovery' in the major first-world economies of the US, Japan, and Europe are behind these falls, with investors fleeing equity investments and piling into the perceived safety of sovereign bonds while they wait out the uncertainty.

Expect more reductions in two to five year mortgage rates if housing sale volumes remain low, and if swap rates continue trending down.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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12 Comments

"..the largest section of our economy, the housing market, showing increasing signs that low volumes may be about to reverse the slight rise in median prices that have occurred in 2010 so far." Yep ! Sell now, before the Spring glut hits...ooops...it may be too late!

Don't be silly........... the flogging of the P.I. dead horse has ceased, it is a stiff breast of life and rests in pieces ...............

Loans may be available to first timers with substantial deposits and probably dual incomes with a pregnancy clause.

But leveraging matey is a dead dog...... it don't got not bark ...it don't got no bite.

The reduction has got more to do with other..................... things.

It's no longer just speculation that land prices might fall...it's now happening across the rural settlements and small towns. The tenants are flooding away leaving the landlords holding the can. The simple fact is there are fewer jobs and growing risks of more layoffs, while across the Tasman they are desperate for workers with skills and Kiwi are sort after.

There is a very high probability that this recession will get a dam sight worse and carry on for a decade.

This is the cost of encouraging the rise of a property based ponzi economy dependent on a never ending flood of immigrants, cheap credit and greed. It is not enough for JK and BE to jabber on about an investment need. It is from unaffordable property that the public must be freed.

As for the fiscal idiocy going on...way past time for the govt to stop borrowing....to stop relying on hope.

well you need to work on your pant changing Elliot.... it sounds unsanitary...and can't be good for you.

Hope that helps.

Wow, good on ya to wear the same pants over a month!!!

well posted Father..........I must confess..!

I did the Hail Mary's.... but I'm afraid the dollop will be compulsory and so will lack any sincerity in the eyes of ...You Know Who. 

Well its what I have been saying for a while now, interest rates are heading down. Hot money is gradually working its way off the central banks printing presses into NZ.  

If the global outlook worsens, Bollard will have to back peddle and lower the OCR.

Cheaper money, plus lower house prices should result in a lift in RE activity over the summer.

The trouble there MattS is, it must be asked why not expect the rates to drop to zero!...what you are looking at are the trees...step back and have a gork at the forest...it aint a nice picture...Noddy will go where the macro environment sends it.

Savers are not going to sit sucking their thumbs while banks play 'stuff you' with them...savers will say to hell with deposits in Noddy banks and move it elsewhere. I have.

Then along comes the faint hint of real recovery in the UK and guess where the rates will go as the hidden inflation smashes the market...rates are set to shoot past 10%. Here in Noddy the cost of the foreign loot will rise higher than the price paid in the UK. Why is it that so many believe we are safe from an international credit storm...it is friggin funny to see people continue to churn out the BS that we are different.

I agree with Matt.

The UK is in a real bind. Inflation is rising. Raise interest rates and all those nice Gilts (govt bonds) go down in value as the interest rates rise.

Print, print, print to keep the interest rates down and buy those Gilts.

Watch the pound devalue.

Watch inflation rise

Watch Gilt holders sell. 

Print, print, print to keep the interest rates down and buy those Gilts.

Watch the pound devalue.

Watch inflation rise

Watch Gilt holders sell.

http://www.marketoracle.co.uk/Article22199.html

Where does the money flee?

The safe haven of resource rich countries.

http://blogs.reuters.com/great-debate-uk/2010/08/25/waiting-for-the-othe...

"I start from the observation that the bond and currency markets, in their infinite lack of wisdom, seem to have divided the whole membership of the United Nations into two classes, high-risk countries and low- (or no-) risk countries.

The former include ClubMed Eurozone members (the PIGS) plus Ireland, most East European and Latin American countries, and a ragbag of the weaker Asian sovereign borrowers.

The amazing thing (at least to me) is that the latter group includes not only such rock-solid risks as Germany and Switzerland, the Nordic countries and Netherlands, but also France (OK, maybe), Japan (debts more than twice as high as GDP, but with even greater accumulated savings balances), and . . . the UK and U.S. as if the mere fact of speaking English were a guarantee of creditworthiness.

(Note that there are solid reasons related to raw materials prices and sound fiscal policy for rating Canada, Australia and New Zealand as low risk)."

Wally, when you look at the forest you see the zombie nations (ZIRP printers) exporting inflation.  That's why in those countries the stimulus was not / is not being felt domestically .. money always flows to the highest return. ie China, OZ and lucky old NZ...

Trees = falling swap rates --> falling fixed interest rates --> same old story

spoken like an ex-copper