Swap rates spike higher as borrowers seek fixed-rate loans

By Paul McBeth

Friday 27th March 2009

New Zealand swap rates spiked this week as borrowers lined up to switch into fixed-rate loans from floating, betting they will offer relatively cheaper funding over the next few years.

The two-year swap rate fell reached as high as 4.21% yesterday and was recently at 3.8%, having advanced from a low of 3.19% earlier this month. The five-year swap rate reached 5.47% yesterday and was last at 4.97%. The five-year rate was a low as 3.82% on January 28.

"The massive trading range yesterday largely came about from concern there was a mass of people out there considering, or doing, a shift from floating to fixed rates," said Stephen Toplis, head of research at Bank of New Zealand. "Swap rates have been pushing higher for some time now."

The Reserve Bank slashed the official cash rate to a record 3% last month, pushing floating rates lower. Still, Governor Alan Bollard said he expects the recession to trough mid-year, with any future OCR cuts likely to be "smaller." With the prospects of a revival in economic growth over the next few years, fixed rates have climbed.

Fixed rates have been rising as lenders hedge for an upturn in the economy, and borrowers shouldn't wait too long before returning to a fixed rate, Toplis said.

Comments from our readers

No comments yet