Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
The Australia/New Zealand 2-Year swap spread has tightened by ~40bp since the end of June, with a more aggressive RBNZ hiking cycle now priced (as we have covered in recent weeks), while the morning's announcement re: the RBNZ consulting on ways to tighten mortgage lending standards is the latest input to contribute to the spread tightening. In terms of details, the RBNZ has proposed a restriction on "the amount of lending banks can do above an LVR of 80 percent to 10 percent of all new loans, down from 20 percent at present." It will "begin consulting on this change later this month with a view to introducing it from 1 October 2021."
- Conversely, the widespread consensus ahead of today's RBA meeting looks for the RBA to walk back its tapering announcement before it even goes into play owing to the COVID situation in Sydney. A reminder that the RBNZ has ceased its own LSAP operations.
- RBNZ guidance surrounding the velocity of tightening will be in the driving seat for the spread in the coming weeks/months. The NZ OIS strip currently prices a ~75% chance of a 25bp hike come the end of the Bank's August meeting (scheduled for 18 August), with a cumulative ~75bp (3x 25bp hikes) of tightening currently priced for the end of the Bank's May '22 meeting. There are plenty of sell-side calls looking for a more aggressive tightening cycle than markets currently price.
Fig.1: Australia/New Zealand 2-Year Swap Spread
Source: MNI - Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.