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90 seconds at 9 am: CDS spreads jump; 3/4/5 yr swap rates rise; US stocks fall; US budget deficit falls; NZ$1 = US$0.798, TWI = 74.1

90 seconds at 9 am: CDS spreads jump; 3/4/5 yr swap rates rise; US stocks fall; US budget deficit falls; NZ$1 = US$0.798, TWI = 74.1

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of rising interest rates at the wholesale level.

The angst we reported yesterday is now showing up in credit markets and that could start affecting the cost of money in New Zealand.

Credit default swap spreads for Australasia - which basically reflect risk on investment grade Aussie bank debt - have risen steadily since early May and are now at their highest level of the year. They have risen by one third in six weeks.

But the trend goes further - NZ Government sovereign CDS spreads are up by a quarter over the same period. And its not only New Zealand; China's sovereign spreads have moved higher even more sharply.

Three, 4 and 5 year swap rates have been rising as well and are up about 25 bps in the same period, although one and two year durations have moved very little.

And regulators are starting to worry about a 'disorderly bursting of the bond bubble', where rates rise fast reflecting new risk.

All this background sets the scene for today's RBNZ OCR review. Governor Wheeler may not change rates but the market has already shifted and upward pressure is starting to show, especially in longer rates.

Bernard Hickey will have all the detail of the Wellington announcements at 9am this morning, analysis of what the MPS means, and reports from the Select Committee testimony.

Stocks are falling in New York in another volatile session as investors extended a recent selloff that has been driven by the unwinding of bullish bets built on supportive policy from the world's largest central banks.

On the other hand, US Government budget revenue is rising, up 9.1% in May year-on-year the latest deficit report shows. And the annual deficit may now come at US$642 billion - and as huge as that sounds, its a big improvement and its the first time it has achieved an annual deficit of less than US$1 trillion since 2008. It also shows how far they have to go, and how much better condition we are in.

The NZ dollar rose sharply overnight and starts today at 79.8 USc, 84.0 AUc, and the TWI rose to 74.1.

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2 Comments

Lots of red flags there...has the RBNZ lost control or did they never have any!

The snowball of debt is heading down the side of Everest..get out of the way...fast.

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"The owners of the Tiwai Point aluminium smelter have announced an after-tax loss of $548 million for 2012." press 

Hmmmmm.....and what will this mean for the SOE share sale?

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