NZ bonds rise to 2 ½-year high on global rout, ASB cuts fixed-rate home loans
By Paul McBeth
Aug. 9 (BusinessDesk) – New Zealand’s benchmark 10-year government bond rose to a 2 ½-year high and ASB Bank lowered its fixed-rate mortgages as prospects dwindled for an early rate hike by the Reserve Bank.
The yield on the 10-year bonds fell 7.5 basis points to 4.03%, the lowest since January 2009. Bond yields move inversely to price.
Government bonds tend to track yields on U.S. Treasuries. The 10-year U.S. note tumbling 25 basis points to 2.32%, also the lowest since January 2009, in the wake of America’s credit rating downgrade and prospects that the world’s biggest economy will fall back into recession.
Traders have pared their bets on Reserve Bank Governor Alan Bollard hikes to the official cash rate over the next 12 months to just 38 basis points, from above 100 basis points after Bollard’s statement two weeks ago that he would remove 50 basis points of emergency stimulus soon.
“Rates ain’t going to change any time soon,” Grant Hassell, head of fixed interest at AMP Capital Investors.
Hassell said the global slowdown has had a big impact on long-term interest rates, and expectations for future rate hikes have been taken off the table for the next 12 months.
“That seems to be a huge turnaround from when the Reserve Bank gave its guidance,” he said.
The prospect of rising interest rates had banks preparing for homeowners to jump out of floating rates, which have been tracking the record low 2.5% OCR, and switching into fixed rates to keep their overall debt costs down.
Today, ASB lowered its one to five-year fixed home loan rates just one week after raising them.
Hassell said some people may switch into fixed rates “if they want certainty through this challenging environment,” but that there won’t be the big jump that analysts were predicting a few weeks ago.
The two-year swap rate has dropped to 3.14%, matching the low of March 15, which was the lowest since March 2009. Swap rates are a benchmark for corporate borrowing.