22 Jan 2015
NZ yield curve might become negatively sloped - Westpac
FXStreet (Barcelona) - Imre Speizer of Westpac, believes that the NZ swap yield curve could easily become negatively sloped if global inflows into the rates market persist.
Key Quotes
“The NZ swap curve is nearly flat and risks becoming negatively sloped.”
“The big question now is whether the NZ curve can flatten further and adopt a negative slope. During the next few weeks, we believe not. The market is likely to price in a higher probability of OCR cuts in the lead up to the RBNZ, given inflation is falling and is forecast to fall further.”
“Moreover, we expect the RBNZ next week to shift its stance from a tightening bias to a neutral one. If the market prices in more easing, the front end of the curve will fall faster than the back end. The 2-10yr swap curve could rise to around 30bp.”
“Longer term, though, there is scope for the curve to become negatively sloped if the global search for yield continues.”
“Global policymakers have been surprised by the persistent falls in inflation and many are in easing mode. The resultant decline in policy rates will continue to make NZ yields look attractive and some of the interest rate flow will be directed this way.”
“In addition, there is the weight of newly created money from the Japanese central bank’s quantitative easing program which expanded last year, and almost certainly from the European central bank’s own program which may be announced tonight.”
Key Quotes
“The NZ swap curve is nearly flat and risks becoming negatively sloped.”
“The big question now is whether the NZ curve can flatten further and adopt a negative slope. During the next few weeks, we believe not. The market is likely to price in a higher probability of OCR cuts in the lead up to the RBNZ, given inflation is falling and is forecast to fall further.”
“Moreover, we expect the RBNZ next week to shift its stance from a tightening bias to a neutral one. If the market prices in more easing, the front end of the curve will fall faster than the back end. The 2-10yr swap curve could rise to around 30bp.”
“Longer term, though, there is scope for the curve to become negatively sloped if the global search for yield continues.”
“Global policymakers have been surprised by the persistent falls in inflation and many are in easing mode. The resultant decline in policy rates will continue to make NZ yields look attractive and some of the interest rate flow will be directed this way.”
“In addition, there is the weight of newly created money from the Japanese central bank’s quantitative easing program which expanded last year, and almost certainly from the European central bank’s own program which may be announced tonight.”