Sometimes it's not what you say. It's what you don't say.
In this instance it was all about a word. Yes, that's right, the US Federal Reserve apparently lost its 'patience' and wholesale interest rates around the globe have fallen in sympathy.
Specifically, in its statement issued early Thursday New Zealand time the Fed dropped the word “patient” from its description of its approach to policy changes.
With financial markets worldwide well accustomed to what such 'raised eyebrow' nuances mean, thoughts have immediately turned to the fact that the Fed's just given a green light to a rate cut soon.
And the reaction was swift and substantial.
In the US the US Treasury 10-year yield sank below the 2% mark for the first time since November 2016, while there were similar moves in Japan (with its 10-year yield slipping to -0.15% and Australia. The Australian 10-year Government bond yield was at a new record low of 1.29%, down 5 basis points.
Closer to home our swap rates* dropped all along the line to new record lows. The 10-year Government bond rate dropped 8 basis points to 1.51%. The 3-month rate was down 2 basis points to 1.57%, while the 2-year rate was down 5 basis points at 1.32%.
As at the start of May, and shortly before the Reserve Bank cut the Official Cash Rate to 1.5% from 1.75%, the 2-year rate was at 1.68%.
Today's NZ Government bond tender also brought record low rates.
Such downward momentum is likely to keep downward pressure on mortgage rates.
And all this comes amid a backdrop of the Reserve Bank set to consider and review the Official Cash Rate again next Wednesday (June 26).
Market observes anticipate that the central bank will leave the OCR unchanged then, but may well cut again (to 1.25%) in August.
*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.
13 Comments
Dire Straits for those with cash.
But great news for the many with huge mortgages (Beatles “Here comes the Sun?”
For the later however, I would be taking the current “borrowers fair weather” as an opportunity to pay down debt if global issues do really go pear shape big time.
David,
Have you seen a forecast yet that is suggesting 10 year NZ govt bond yields at 1% within the year ?
I ask as I can't find one contrarian view to the big banks which are collectively still calling 2.25% within 6 months.
By way of illustrating the point within the past 6 months we have seen the April 2033 trade from 2.95% to below 1.70% today. That's a biblical move that nobody called.
If yields continue to decline at this pace we will be below 1% on the 10 year within six months.
Recession evidently expected by all big banks (Central.)
Gold shot out of its previous holding pattern.
War possibility in Middle East.
Splintering sounds as leveraged mess of debt around world starting to smell and defaults rising.
Print til you drop folks.
IF confidence is truly lost in dollar (not yet) then gold will be new reserve currency again.
It is either print more, default, or jubilee. Another 2 years of printing I would say.
The elites are determined to hold their gains and asset values.
Now they can borrow even more to buy back their own shares and cash out.
Deposit rates to plunge.
Lets do the time warp again.... 2003-07 without the housing boom.
Every day a worrying 56 year old sees the world doing things and saying stuff he never imagined would appear in his lifetime.
You got it Mike. The global financial system is broken, the US is in decline and broke (New York is so broke the Police issue fines to the poor for loitering - the rich stealing from the poor.
Capitalism is in retreat towards Socialism - that’ll be the dark horse that Fascism rides in on!
Those that take the red pill, and those that take the blue pill.
Watch this space.
Obviously interest rates are low to keep the doors of Zombie companies open and stop innovation.
If interest rates go up, how would companies that make no money stay afloat?
Geez, use what's between your ears! U either want a dynamic economy where interest rates reflect risk n old companies gives way to more innovative companies
OR
You want to extend the Ponzi Scheme and enjoy the path-of-least-resistance.
Obviously the Zombie overloads want to eat more brains, let them eat more brains!
Problem is too many companies are not making any money. raise interest rates? then we'll see crashing companies and then the stock market crashing and then pensions and then the economy and then the banks adds up to the 2nd Great Depression, Im not keen on that myself.
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