RBNZ: Deviating from reality in NZ rates - TDS

Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities, suggests that New Zealand’s GDP, CPI and employment have all exceeded the Bank’s forecasts, yet the RBNZ remains dovish, indicating it intends to “…keep the OCR at this level through 2019 and 2020”.

Key Quotes

“Our fundamental model of NZGB 10yrs has deviated from actual for some time now and our model has the fair yield roughly 70bps above actual levels. Historically when the deviation of actual from fair is -40bps or more and has turned, the model has done a good job of pointing to a local low in yields – the exception being Sep'08.”

“From a technical perspective, the double bottom in NZGB 10yr yields around 2.50% supports the model's conclusion that the local low in yield has most likely been set. Our bias is to sell strength and position for steeper curves, as is the case for Australia.”