Increase in market interest rates

Press, 9 July 1986, Page 36

Increase in market interest rates

PA Wellington Money market interest rates drifted upward yesterday ahead of tomorrow’s $5OO million stock tender, but dealers said they should not move far. They said the key shortterm interest rates, such as 90-days, were reacting to technical factors, while long-term rates were reacting to the large size of the tender.

“But over all, the trend for interest rates is to stay down around the current levels or lower,” a dealer said.

“While rates are still about 1 per cent above the last tender and won’t go back to those rates at this tender, they may well retreat later in the year.”

Dealers said there was currently no overseas interest in the New Zealand money market, due to better opportunities being offered overseas, including Australia. This could change quite quickly, and it would not

take too much buying pressure to push rates down again at a future tender. “The long-term view must be toward further easing in rates,” another dealer said. “The Minister’s speech last week about the deficit has been reasonably well received, despite its talk of a tough Budget, and liquidity in the market is high, which should help hold rates down. “The major worry at present is the CPI (consumers price index) figure due out soon. If it is over 2.6 per cent, all the financial markets could be marked down.” The tender tomorrow offers $5OO million of Government stock with three maturities. Dealers said that with most overseas buyers out of the market, virtually all the tender would go to local investors.

But those investors in -many cases had spare money to invest at the moment, so there was

little prospect of rates rising much further. The long-term secondary market had been very quiet this week ahead of the tender, though dealers said buying support had emerged whenever rates had shown a tendency to rise. Long-term quotes yesterday were three years 16.65 per cent (16.5 per cent on Monday), five years 16.6 per cent (16.4 per cent) and 10 years 15.7 per cent (15.6 per cent).

Prime 90-day bills firmed to 16.25 per cent (15.8 per cent on Monday), while on-call money firmed to 15.8 per cent (14.75 per cent).

Dealers said the firmness related to final settlements of the June stock tender and was largely technical. The Reserve Bank injected $2O million into the short-term market The advance was by way of sellback deals secured by 7-day stock at yields of 15.56 per cent to 15.65 per cent.