A change in the fixed interest soundtrack

What’s the theme?
For those TV channel surfing late at night, there is a programme called ‘What’s the theme?’, which shows endless music videos from the same genre – depending what night you switch it on, you will get hours of punk, grunge, heavy metal or cheesy 80s pop.

During the first month of 2015, the unrelenting mood music in financial markets was a medley of falling oil prices, fears of deflation, and expectations of an ECB stimulus package.  Over a dozen central banks surprised with dovish policy decisions, and bond yields in many countries hit new lows. 

The start of February saw an abrupt change in the soundtrack.  With the ECB having delivered its long awaited QE programme, the New Zealand fixed interest markets looked forward and focused on two key issues:  the prospects of the US Fed removing stimulus and lifting long term interest rates globally; and in New Zealand whether the RBNZ was really more likely to move the OCR ‘up or down’.

A road map from the RBNZ
In the January OCR Review, the Reserve Bank hinted that the next move in the OCR could either be ‘up or down’, in part as tactical ploy to ensure the New Zealand dollar did not appreciate in an environment where other central banks were loosening monetary policy.