OCR contracts

OCR discussion thread



Edited 1 time(s). Last edit at 07/29/2011 03:16AM by admin.

should this stock have an AFTER July 2010 option?

Jan 2010 stock, says on......jan1. Is that correct?

Is this stock the "FIRST" increase or not? The Unemployment stocks have a specific requirement in the long description that the fall in Unemployment must be the FIRST fall. But the OCR stocks seem to be lacking this?

The OCR stocks say, for example:

Short Description: OCR to be increased any time before 1 July 2010

Long Description: This contract pays $1 if the Reserve Bank of New Zealand increases the Official Cash Rate (OCR) any time before 1 July 2010.

Doesn't seem to be a requirement that this is the FIRST increase?

And yet, on the Browse Stocks page, the heading above the stocks reads: "When will the OCR first increase?"

The first OCR increase will cause all these OCR contracts that are still open to close at $1, since the definition "OCR to be increased any time before [x]' will be satisfied.

should this stock have an AFTER July 2010 option?

No.

Bollard seemed pretty clear today that he would not raise the OCR until "the latter part of 2010". [www.nzherald.co.nz]

It seems strange that the market is basically saying there's a 60 per cent chance he's going to go back on his word!

Financial markets are saying that there is a 100% chance that he will have tightened 25bps following the March meeting!!! So yes, the financial markets think that the RBNZ is going to be proved wrong, just as it was proved wrong late last year when it pronounced the recession over.

Even if the RBNZ is proved wrong, do you think Bollard will go back on his word? As Brian Fallow pointed out, Bollard didn't qualify his promise at all. He didn't say "rates will remain at current levels, unless the recovery is quicker than expected".

This is not an unqualified commitment. Bollard said that "We continue to expect etc etc......". Not hard to see him saying early next year "We no longer expect etc etc...due to a stronger than expected recovery in the global and domestic economy". We've been down this track countless times before. It's a quality problem for the Governor - if the economy is genuinely doing better he shouldn't get much criticism as he eases of the accelerator. And he always said that he'd change his mind if the facts changed.

...in other words the conditionality is implied. No central banker, not even the RBNZ, is going to make an unconditional comittment to maintain a policy stance that might upon the receipt of new information subsequently prove inappropriate.

[www.nzherald.co.nz]

Looks like it's expected that Bollard will back down on his "low until late 2010" stance at this weeks meeting.

As Dibbo said :

Quote
Financial markets are saying that there is a 100% chance that he will have tightened 25bps following the March meeting

APRIL2010 stock looks a bargain at 40 cents.

Full Disclosure: I'm long on this one

Bollard did a radio interview last week and was quite clear that he won't be endorsing what the market has priced in. I think he will eventually cave, but probably not this week.

Treasury have revised their forecasts up. RBNZ will be forced to do the same at some point.

[tvnz.co.nz]

But remember there was already a yawning gap between Treasury and RBNZ forecasts - Treasury massively lowballed their forecasts in the Budget to avoid being put in the position of having the tax take continuously falling short of forecast. So they have a lot further to go to get with the recovery program.

Right you are, but is their revised -7.5% unemployment and -10% house prices still their 'worst case' scenarios? I notice its mostly inline with other forecasts now. With the exception of the RBNZs housing forecasts (which are worse)



Edited 1 time(s). Last edit at 09/07/2009 11:43PM by Artist.

Well the RBNZ didn't publish any housing forecasts last time - I suspect they've revised them up, but are afraid that publicising the fact would be read as a de facto endorsement of the property market.

I think the OCR increase stocks are some of the more interesting being run at the moment. Markets are apparently pricing in the first rate hike for March next year (http://www.stuff.co.nz/business/2858740/Market-takes-on-Bollard-over-rate-rise-timing), whereas Bollard's statements may mean no rise until September. Perhaps either the $0.31 April increase stock is underpriced or the $0.78 July increase stock is overpriced?

"The market has brought forward the timing of expected RBNZ tightening after a string of better-than-expected NZ news," said Danica Hampton, senior strategist at BNZ referring to this week's data releases, including growth, current account and migration.

"Hampton says the market is now pricing an 80 percent chance of a rate increase in January and a 75 bps to 100 bps of tightening over the next 12 months."

[www.reuters.com]

"... while people are starting to speculate that the RBNZ may bring forwards its interest rate increases, as evidenced by the pick-up in swap rates, ING believes Bollard is “probably quite realistic” in predicting rates won’t pick up until the second half of 2010."

[www.scoop.co.nz]

"“We see the scope for growth to add pressure to monetary policy expectations over the second half,” said Bernard Doyle, economist at Goldman Sachs JBWere Ltd. in Auckland. “We continue to believe the first rate hike will come mid-next year, but with a reasonable chance of an earlier move.”
...
Bollard may be reluctant to raise the benchmark too soon because that may further stoke the currency and curb exports, which make up 30 percent of the economy. New Zealand’s dollar has gained 27 percent against the U.S. dollar in the past six months, the second best performing major currency after South Africa’s rand. "
[www.bloomberg.com]



Edited 1 time(s). Last edit at 09/23/2009 11:03AM by Taurusport.

related news regarding RBA hike and effect on RBNZ:

[www.abc.net.au]
""Next in line is the Reserve Bank of New Zealand, because based upon the options on interest rate futures, we see that the market is beginning to price in a possible move by the RBNZ as well."

[www.forexhound.com]
"Although the Reserve Bank of New Zealand is on record saying that it would not raise rates until early next year, the move by the Aussies may force the RBNZ to move up its plans."

Disclosure : I'm long OCR.INCR.APR10

Without the RBNZ changinging its stance the differential with Oz could very quickly shoot out to 1.5 - 2.0% over the coming months....not sure what effects that would have though.

I'm also getting long on APR10,

The drum keeps beating:

Quote

"Economists are revising their growth forecasts upwards for the coming year – and also bringing forward their predictions of when the Reserve Bank will begin lifting interest rates."

[www.nbr.co.nz]

JP Morgan seems to think that Bollard will keep his word by holding the rate until later in 2010, then pushing rates up quickly. It's all a guessing game at the moment.

[www.interest.co.nz]



Edited 1 time(s). Last edit at 10/12/2009 04:05AM by Osty.

Marekt seems to be pricing in 25 point rise in January :

[www.stuff.co.nz]

Quote

"Market pricing is now consistent with a 25 basis points rate hike from the RBNZ in January and about 100-125 basis points of tightening over the next twelve months," said Danica Hampton, currency strategist at Bank of New Zealand.

With retail sale increases being double that picked by economists I think Bollard will have a hard time trying to keep the OCR at such a low level for so long.

[www.bloomberg.com]

Indeed, unless something drastically bad happens the Reserve Banks position is becoming increasingly untenable

David Hargreaves is now suggesting that Bollard may have to raise rates sooner rather than later, thanks to the higher than expected inflation result: [www.stuff.co.nz]

In other related news, the NBR is reporting that some economists are now favouring March for the first rise [www.nbr.co.nz]



Edited 1 time(s). Last edit at 10/15/2009 12:11AM by Taurusport.

Westpac is now predicting rates to begin rising in March 2010: [www.bloomberg.com]