FIXED INTEREST ‘Play’ unclear

Press, 9 December 1989, Page 33

FIXED INTEREST ‘Play’ unclear

By RICHARD BOULTON The unwinding of near-dated futures contracts and the associated "play” in both the short-term money market and the Government bond market has dominated fixed interest markets all week. Although the strategy is not totally clear to the market at large, there appears to be an attempt to transfer from the December Government stock contract (due to close on Wednesday) to the March, 1990, contract. The effect on physical yields was to push the 2/95 maturity up 0.1 per cent on the day to close at 12.30% in the wholesale market, close to last week’s finish. The 11/93 benchmark stock closed at 12.47%, also firmer on the day and up almost 0.1% on the week. The cash market was again volatile with the Reserve Bank returning the daily cash target to S3OM (from S4SM on Tuesday). Mid-week, better distribution saw the call rate down to 12.5%, but by yesterday, poor distribution, a cash “play,” and the week-end factor saw the call rate close around 13.75%. With the prospect of two long week-ends during the Christmas break, corporations have been content to place funds slightly longer than might otherwise have been the case. The 90-day rate was relatively steady, to close at 13.95%. Although Westpac received headlines for raising its indicator lending rate 0.5% to 15.75%, it was only re-aligning itself with competing banks. It could, however, be construed as an attempt to recoup some of its losses in the recent “futures debacle” — again the regular customers have to pay. An unfortunate perception has now crept into the markets that interest rates are unlikely to drop before Christmas (a realistic assumption), nor during the first half of 1990. There is a definite feeling that our so-called economic recovery has stalled and that the present administration is unable to implement policies to assist. This economic uncertainty is helping to underpin rates at current levels, and without specific action it is now difficult to see interest rates easing during the first quarter of 1990. Time will obviously give the answer, but the December quarter Consumers’ Price Index, due out towards the end of January, will be of great interest to the whole country. Richard Boulton is research partner at Hamilton, Hindin, Greene.