This note is to record that the jumps in wholesale rates in the past day or so are especially notable.
Tuesday's 29 basis points leap in the one-year swap rate was the largest one-day gain since we started recording daily swap rates in May 2007, so for at least 15 years. Today, Wednesday, this rate is now 4.05%. the highest it has been in 13 years.
Tuesday's 28 basis points jump in the two-year swap rate was the largest single day rise since October 2021 when the New Zealand Consumer Price Index jump surprised markets with an unexpectedly large increase. Today this rate is now 4.40%, its highest level in 12 years.
Today, the US Treasury 30-year rate rose to 3.5%, its highest since April 2011, an 11 year high.
These sort of sharp shifts higher will draw retail interest rate responses if they hold. A lot now depends on how markets react to Thursday's US Federal Reserve policy announcements.
Daily swap rates
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50 Comments
It’s been a truely dismal forecasting performance from the RBNZ. First they opened the credit taps unnecessarily wide (removing LVR was particularly egregious).
As the months rolled on and it became painfully clear the response was overcooked we got told inflation was “transitory” and just supply side and nothing to do with monetary policy settings. The RBNZ told us they had little impact on house prices going ballistic.
Even when asked to look at their decisions in hindsight they still don’t admit they made any mistakes.
The average Kiwi is going to pay dearly for their hubris, through losses from the QE process, losses from an asset bubble being turbo charged and massive inflation.
And through all this there is nearly no criticism of Orr from politicians or the media. It blows my mind
Yes...I was pointing out back in 2020-2021 that I thought Powell was the most dangerous man on the plant with his covid response policies and then inflation denial. Especially because of the potential pain he could cause if his actions and denials were misplaced (it would impact most of the planet)....which it looks like they have been....and I think its far less likely that Russia would have invaded Ukraine had the Russians not had the ability to blackmail large parts of the world via energy and food supplies issues during a period of rising inflation. So again, a policy mistake by the US has played into the hands of the Russians giving them economic leverage to carry out this war. Had that mistake not been made, I doubt Putin would have gone ahead with his plan as otherwise the sanctions would have crippled them.
We need a complete change of guard in terms of leadership across the western world....people that are willing to take responsiblity for their actions and actually admit there are problems and do something to address them. As opposed to the current crop of silly old men (and women - I'll include the likes of Yellen and Largade) who don't appear to think they are responsible for anything...despite continuous policy blunders.
And I find it bizarre that the Fed officals all managed to cash out of the share market at its peak.....and deciding they could no longer play the game. Suddenly they can't play the market, and all of a sudden they are crashing it...might just be a coincidence. But then again, it might not be.
This is completely deliberate. This is a planned crashed.
We had Klaus Schwab head of the World Economic Forum at the World Government summit in Dubai last month basically spell out how they are crashing the world economy so they can restructure it for their forth industrial revolution. They also admitted that they don’t know what all the consequences are going to be.
We’ve basically allowed our governments tp hand over control to a few very rich people who don’t care about us and just want total control.
Trust me when I say we haven’t seen anything yet. Things are going to get so much worse.
1980s are going to look like a cake walk.
The problem is the increasing trend of central banks to think that they can predict and control the future. They no longer simply respond to something that has already happened, but implement policy to shape a particular outcome, or to stop something from happening in the belief that they possess economic clairvoyance. In this case, all those bizarre early Covid models predicting Armageddon never eventuated, and it turns out the central banks acted unnecessarily. Now we all pay the price.
Don't forget it is the banks themselves who are responsible for lending prudently notwithstanding the RBNZ's lack of regulatory acumen. It is management and their shareholders (hopefully) who get hit if things go South. To me, the bank management have shown themselves to be feckless, greedy politicians rather than responsible risk managers and custodians of shareholders funds (and taxpayer support).
Yes I was looking at these last night and had a sinking feeling that we might be in far more trouble than I initially thought.
Its the near vertical rate of increases makes me think that central banks might need to continue to increase the rate that they raise in response....and it becomes like chasing your tail....you never get any closer to the target.
Inflation could go far higher than what we think as rising interest rates/inflation and the associated costs of that, get passed through to consumers in order to avoid excessive business losses.....which results in even higher recorded inflation....which results in even higher cash rates from central banks.
There's a real risk of an out of control inflation spiral. How high before the average consumer breaks and will the average business break at the same time as the average consumer? Or do we just start a game of pass the parcel (passing costs onto one another in order to avoid default on payment) and see who is left standing at the end holding the bad/unpayable debt?
This one’s for you Car-loss
https://twitter.com/naiivememe/status/1536654452094300160?s=21&t=jrpxZo…
I did...last May. I was on a 2.29% rate at the time, my mortgage broker thought I was insane and strongly advised against breaking, but I went through with it anyway. The 3.19% rate I took instead will see me through to May 2026, so hopefully I can suck up 3-4 years' worth of decent pay rises before having to pay a whole lot more.
Even the 10 year swap is vertical (going up).
"Investors" what's the upside to holding on to your house(s)? I would be panicking early (as in the best price you can get in the next few weeks might be the best price you can get for a while).
Once you start this ball rolling you will be able to buy back in cheaper or do you really believe the government can bail you out? (the last budget would not be encouraging for this theory, will they really be bringing in major accommodation supplements before the next one?)
The 3 through 10 year swaps had been pretty flat recently....and I was thinking, right that might be the extent of what we see with a bit more of a lift for shorter terms. But with the 10 year pushing higher....who knows how high this could go now. I see even the 10 year bond is above 4% now...
Boat’s sailed. Best to hold on for a few years and wait for the upswing.
It might be worth pointing out the obvious too: either buying or selling a house is a giant pain in the arse and can cost a lot. Buying a house can often feel like a physical violation as the banks examine every part of your being while ever requesting more expensive pieces of paper.
A decent reason why the housing market doesn’t swing around like the stock market. Most people don’t have the emotional fortitude to trade properties like stocks. It’s just way too much work.
So you, as an investor(?), are not selling because you're too lazy and entitled?
Have you done the numbers? You might be loosing multiples of the annual median income if we go back to DTIs of several years ago.
Do you think 2.5% mortgage rates are normal? Are you going to hold until it gets back there or do you want lower? Do you really think the country is going to pay for $4-5 gas to keep your rates from rising?
On another note not reaching the main news in NZ...
Sri Lanka is bankrupt with major rioting
Another 'Good & Safe' Chinese property development company Sunac has also defaulted on a $29 million dollar bond debt payment and has said no more payments will be made.
3 banks in China have frozen $178 Million of deposits
German inflation at over 20%
Do I have to mention US stocks tanking now down around 20% for the year and Bitcoin...?
What could go wrong in our little overinflated bubble....?
What would happen if at the next OCR review in July, the RBNZ announced a 200 pt hike in the OCR, from 2% to 4%? And if inflation starts to flatten as a result, they can start thinking about easing rates much faster.
The minor 25 and 50 pt increases aren't really doing anything. Surely something radical needs to happen if the RB is serious about getting on top of inflation?
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