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8 Jul 2013
Flash: Market underestimating pace of OCR? – BNZ
FXstreet.com (New York) - The New Zealand 2-year swap closed the week at 3.29% and the market now prices close to 70bps of rate hikes from the RBNZ in the year ahead, which is aligned with our own forecasts, suggests the BNZ Research Team.
However, we believe the market still under-estimates the pace of OCR increases in the coming 2-years. We see 200bps of hikes from the historic low of 2.50%. The market currently prices 150bps. “We therefore continue to see value in hedging rate risk over a 2-5 year time horizon. We continue to see persistent paying pressure in the NZ mid-curve that has pushed 5-year swap above 4.0%, its highest level since September 2011.”
The 2-10s curve closed the week at 135bps. However, developments in the US on Friday night will likely see the curve open steeper today. US long yields gapped higher in response to Friday’s payrolls data, dragging many of their offshore counterparts with them. US 10-year yields closed at their highest level since August 2011. Ultimately, “we expect NZ long-end bonds and swap to open at new highs for this cycle today. The NZ 2-10s swap curve may also revisit its June highs above 140bps.” the team adds.
However, we believe the market still under-estimates the pace of OCR increases in the coming 2-years. We see 200bps of hikes from the historic low of 2.50%. The market currently prices 150bps. “We therefore continue to see value in hedging rate risk over a 2-5 year time horizon. We continue to see persistent paying pressure in the NZ mid-curve that has pushed 5-year swap above 4.0%, its highest level since September 2011.”
The 2-10s curve closed the week at 135bps. However, developments in the US on Friday night will likely see the curve open steeper today. US long yields gapped higher in response to Friday’s payrolls data, dragging many of their offshore counterparts with them. US 10-year yields closed at their highest level since August 2011. Ultimately, “we expect NZ long-end bonds and swap to open at new highs for this cycle today. The NZ 2-10s swap curve may also revisit its June highs above 140bps.” the team adds.