February 22, 2011 / 5:23 AM / 9 years ago

MONEY MARKETS- NZ IRS tumble, RBNZ rate cut eyed after quake

HONG KONG, Feb 22 (Reuters) - Short-term New Zealand swap rates tumbled on Tuesday after a deadly earthquake in Christchurch prompted market players to shift gears and eye a possible central bank rate cut to help boost confidence in the economy.

* One-year swaps plummeted by a hefty 15 basis points to 3.15 percent, poised for its biggest single day drop since April 2009 and taking them to just 15 basis points above the 3 percent policy rate.

* Money markets were reflecting a roughly 20 percent chance the Reserve Bank of New Zealand could cut rates at its next policy meeting on March 10, a sharp shift in expectations for investors who had been eyeing rate hikes on the horizon.

* The fall in short-term rates yanked the swap curve steeper, with the spread between ten-year and one-year swaps hitting a 2-month high of 218 bps.

* Westpac Bank said there was a chance that the RBNZ would cut the official cash rate to shore up business confidence, while other bank analysts have already pushed out their expectations for the next rate hike by the RBNZ.

* Analysts at Deutsche Bank said there was a “significant likelihood” that the RBNZ would cut rates at one of the next two meetings to provide greater assurance that a recovery will still take hold in 2011.

* Rate markets have cut the total amount of expected RBNZ tightening over the next year by about half to just 29 bps over after the deadly earthquake, the second to rock the country’s second biggest city in five months.

* Data last week showed New Zealand retail sales fell for a second straight quarter in the last three months of the year, reinforcing expectations that the RBNZ would be slow to lift rates.

* In Southeast Asia, Thai swap rates dipped as banks stepped in to received fixed rates in the market, seeing the spike last week as overdone after a sharp surge in rates last week sparked by the central bank’s sterilisation of dollar intervention.

* The Bank of Thailand caused a squeeze in the swaps market last week when its sterilisation through purchases of forwards caused an unusually big shift in forward points, driving up IRS rates, whose floating leg is based on forward rates.

* As forward rates have settled back and pulled down the daily fixings for IRS floating rates , short-term swap rates dropped.

* One-year swaps slipped 1 bp to 2.38 percent, down from a three-year peak of 2.52 percent hit last week. Six month fixings, the floating leg for swap deals, fell 5 bps to 2.03 percent.

* In dollar funding markets, three month dollars in Singapore were unchanged at 0.31294 percent. (Reporting by Saikat Chatterjee; Editing by Alex Richardson)

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