Roger J Kerr says borrowers who missed the bottom in swap rates just before Christmas have another opportunity to fix on this pull-back in market rates. You agree?

 By Roger J Kerr

RBNZ Governor Graeme Wheeler’s monetary policy statement in early December and OCR review statement in January effectively convinced the local money market to stop pricing-in future OCR cuts as the RBNZ foresaw a more positive outlook for the NZ economy.

Up until a week ago, short-term swap interest rates were on an upward trajectory as the market forward pricing shifted from OCR cuts to OCR increases at an earlier date.

Over the last week we have witnessed less certainty about the positive economic outlook creeping into the interest rate markets.

Falling yields for US 10-year Treasury Bonds aided the movement down in the swap interest rates across the yield curve from two years to 10 years.

Quite rightly, the questions are being asked about GDP growth as the productive/export sector starts to sag under the weight of the summer drought on agricultural production and the high Kiwi dollar on farm-gate prices.

Adding to the doubt about interest rates rising were the various reports on the macro-prudential tools the RBNZ can now employ to slow the housing market without increasing official interest rates.

Both Finance Minister Bill English and Governor Wheeler well know that the threat to curtail the banks’ lending aggression will most likely be sufficient to slow things up without actually implementing the macro-prudential measures in practice.

Borrowers who missed the bottom in swap rates just before Christmas now have another opportunity to fix on this pull-back in market rates.

As the Kiwi dollar falls further from a stronger USD and weaker AUD in global currency markets, the prospect of swap interest rates reducing further from here diminishes.

Movement across the page over coming months is the preferred view for swap rates from here, ahead of significant decreases or increases.

Investors have to be organised and quick to secure new issue, fixed interest securities on offer in the market place today.

Recent bond issues by LGFA and Mighty River Power have been snapped up at low margins as the weight of money looking for a half decent yield continues to grow.

Other corporate borrowers should be testing the market to tap this investor demand.


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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at

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