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10 and 2 Year Yield, and 10 Vs 2’s Spread

10 year averages from 1- 30 years align as 3.87, 4.35, 5.11, 5.88, 6.47 and 7.91. Targets from 1 - 30 years include 3.44, 3.60, 4.13, 4.72, 4.67 and 4.24. From either the last monthly average April 2015 at 3.25 or the daily close at 3.76, current price trades below all averages with focus on higher prices due to oversold yields longer term. The current monthly average at 3.25 is the lowest reported average in five years and the current range lies between 3.25 and highs at 5.82, seen 53 months ago or 4.41 years.

 2 Year averages from 1 - 30 years align as 2.99, 3.26, 4.75, 5.71, 6.48 and 349 months or 29.08 years factors to 7.98. The noted point is 13 data points were missing in the RBNZ series from November 2014 - November 2013. Reported averages are close but not accurate. The last traded close price was 3.06 and last monthly average was 3.12. Why the 2 year average is due to its introduction to coincide with NZD free float in March 1985 as opposed to the 1 year average with more data points missing and introduced June 1987.

10 Vs 2 Year Spread. An imperative to understand NZ markets is the 10 - 2 spread. The current price at 0.61 trades between 1 and 2 year averages at 0.46 - 0.88. A break of 0.88 targets the range between the 2 and 5 (57 months) year average from 0.88 - 1.16. The 5 year average is oversold while the 1 and 2 year average is middle range in its price structure. The 1 year targets 0.69, 2 year 0.41 and 5 year 0.72. If a price break lower occurs in the 1 year average then focus falls to 0.22, the last monthly average. Targets then become 0.23, 0.41 and 0.72. What changes is the 1 year target price.

In interest rate terms, no dramatic moves are seen however the bias is higher prices but on a slow and gradual path. When the RBNZ last embarked on its three rate rise cycle, interest rates were literally on the floor. What determines how far and how fast yields and interest rates move is pending economics.

GDP

New Zealand’s GDP grew 0.8 in the last 2014 quarter or 3.2 annualized. In terms of annual averages alone, the figure is actually 3.3. Based on annual averages dating to Q1 1990 and rescaled to 1,5 and 10 year averages, the 1 year average is found at 2.51, 5 year at 2.68 and 10 year at 2.57. The targets from 1 - 10 years are 2.84, 4.49 and 4.62. From current 3.3 or 3.2, the 1 year average is overbought yet the current 3.3 projection is above all annualized averages. A drop in GDP is corrective unless 2.51 breaks lower yet the bias is higher.

Reserve Bank, New Zealand, Rate Decision, Monetary Policies, RBNZ, economic factors, Overnight rate New Zealand GDP

To offer comparative context and rescaled to the same methodology, AUD annual GDP projections are found at 2.7 with a 1 year average at 2.85, 5 year at 3.00 and 10 year at 3.09. The 1 year average is key for AUD as the targets based on 2.7 and below the 1 year average is 2.24, 2.21 for the 5 year and 1.8 for the 10 year. USD at current 2.4 GDP annualized is above the 1 and 5 year averages at 2.19 and 2.00 yet 2.4 is bumping against the 10 year average at 2.47. Targets are 2.4, 3.6 and 0.8 for the 10 year. Above 2.47, target becomes 4.12.

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