Australia and New Zealand Banking Group Limited (ANZBY)
- Simply Wall St.
What Type Of Returns Would Australia and New Zealand Banking Group's(ASX:ANZ) Shareholders Have Earned If They Purchased Their SharesThree Years Ago?
Australia and New Zealand Banking Group Limited (ASX:ANZ) shareholders should be happy to see the share price up 23...
- Bloomberg
RBNZ Says Negative Rate Less Likely if Banks Use Cheap Loans
(Bloomberg) -- New Zealand’s central bank said it’s less likely to impose a negative official cash rate on banks if they use its new program of cheap loans to lower borrowing costs.“If the banks don’t like having a negative OCR, then passing on as much of the Funding for Lending Program as possible through into lower lending rates is going to reduce the likelihood that a negative OCR is needed,” Assistant Governor Christian Hawkesby told Bloomberg in an interview Thursday in Wellington. “So there is that incentive there for them, because it is about the overall amount of monetary stimulus that’s required.”Investors yesterday removed bets that the RBNZ will take rates negative next year after the central bank projected a more upbeat economic outlook and said it expected the FLP to provide a significant amount of additional stimulus. Hawkesby said a sub-zero OCR remains an option amid considerable uncertainty, and the effectiveness of the FLP will play a key role in that decision.“The FLP is going to deliver more stimulus and will put us in the ballpark of how much is required, but there is still a wide range of uncertainty around that and more may need to be done in the future,” Hawkesby said. “If the FLP doesn’t result in lower funding costs that are passed on through into lower lending rates, then we aren’t delivering more stimulus, and on current settings more would need to be done through another tool.”New Zealand’s dollar extended its gains after the comments, breaching 69 U.S. cents to approach a 20-month high. Bond yields and swap rates rose to fresh three-month highs as traders discounted the chance of further rate cuts.RBNZ ToolkitThe RBNZ will begin offering banks three-year loans early next month, reducing their funding costs and giving them scope to further lower lending rates. The loans will be offered at the OCR of 0.25% but on a floating rather than fixed basis, so that they will become cheaper if the OCR is cut.Hawkesby said the RBNZ expects lending rates to fall “reasonably quickly” after the FLP is launched. At the same time, policy makers continue to plan to add negative rates to their toolkit. Their next meeting is in February.“Going into next year it will be operationally ready to be actively in the toolkit if required,” he said.Last month, ANZ Bank New Zealand Chairman John Key described negative rates as the “nuclear option” and urged the RBNZ not to go down that path as it could create negative sentiment in the market. Other bank executives have echoed his views.Economists at ASB Bank and Bank of New Zealand yesterday took negative rates out of their forecasts, citing the better economic outlook. ANZ and Kiwibank now see a shift to sub-zero rates occurring much later in the year.New Zealand bond yields and the currency jumped yesterday after the RBNZ’s Monetary Policy Statement. Hawkesby said the market response reflected the economists’ forecast revisions rather than the central bank’s commentary.“We don’t feel like we delivered a surprise,” he said. “We provided a message that was well expected, well understood and well telegraphed, and the market reaction was more toward the economists changing their calls.”Still, the economy has been stronger than expected, reducing the amount of stimulus the RBNZ needs to deliver to lift inflation toward the midpoint of its 1-3% target and to boost employment, Hawkesby said.“Less stimulus is required than we thought in August, but still a substantial amount of stimulus,” he said. “The economy has been more resilient than we had expected. The downside risks are less skewed than they have been earlier in the year. What we would emphasize is that there are still some very big downside risks out there.”(Updates with Hawkesby comments from 11th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
The ‘Big Bang’ Shift on Swaps Shouldn't Frighten Anyone
(Bloomberg Opinion) -- If everyone across global financial markets is prepared for a “big bang,” will it truly be a big bang?That, in a nutshell, is what banks and other institutions exposed to interest-rate swaps on more than $80 trillion in notional debt are about to find out starting this weekend. The secured overnight financing rate, or SOFR, will suddenly replace the effective federal funds rate in valuing these derivatives in what’s seen as a big step forward to leading the financial system away from the London interbank offered rate benchmark that has dominated the lending world for about five decades.I’m not sure when Wall Street as a whole agreed to dub this transition the “big bang.” I found research from as far back as February from ANZ Research flagging the adoption of SOFR discounting this month as a “big bang for the benchmark rate reform process,” with further commentary from BMO Capital Markets in June and Barclays Plc in July. Regardless, the nickname makes the switch sound rather ominous. Just before Europe made the shift to its own new benchmark in July, a Bloomberg News headline said “Banks Scramble to Cut Derivatives Losses on Eve of Market Reset.” In hindsight, that switch had little market impact. There are many reasons to expect the same will happen this time around, starting with preparations made by clearinghouses that stand between the two sides of a swap. Bloomberg’s William Shaw, Liz Capo McCormick and Tasos Vossos reported that LCH Ltd. and CME Group Inc. aim to effectively neutralize changes in swap values by shifting any compensation from clients whose position values go up to those whose values decline.“For about six months our members and clients have been able to look on their screens and see a forecast for the compensating cash payments and compensating swaps they will receive, so they are familiar with what’s about to happen,” David Horner, head of risk at SwapClear, which is part of LCH, told Bloomberg. “It’s important for the market that it runs smoothly.”Bloomberg Intelligence analysts Ira Jersey and Angelo Manolatos attempted to put some hard numbers on exactly what might happen. They estimated in late August that for a $10 million notional 10-year swap with a coupon of 0.52%, the net present value would decline by about $400 simply because of the switch to SOFR discounting. In theory, that should be manageable for clearinghouses to adjust.If there’s one element that could cause chaos, it’s that clearinghouses are not just settling these losses with cash but are also distributing fed funds/SOFR basis swaps to compensate for swings in value — something that didn’t happen during Europe’s transition. Both CME and LCH are then holding auctions to allow clients to close those out.Again, as Horner said, banks have seen forecasts for both the cash and swaps they’ll be getting for months now. There shouldn’t be any major surprises. But if there are, here’s Shaw, McCormick and Vossos on what that might look like:Clients have agreed to a maximum loss, said Sunil Cutinho, president of CME Clearing, and “if their positions cannot be auctioned off then they are fully protected and they can use their own private means to dispose of their positions.”However, there are concerns about price swings in the market amid a surge in supply as some banks ditch basis swaps they received as compensation.The big question is how well the auctions go. Clearinghouses are not guaranteeing the minimum prices for the basis swaps, which could fall below the maximum that firms are prepared to tolerate, said Joshua Younger, a strategist at JPMorgan Chase & Co.“Many would then likely unwind them in the open market and the price action could get very disorderly,” he said.Maybe I have too much faith in markets and in arbitrage, but I have a hard time seeing how an event so telegraphed could lead to any serious long-lasting disaster. It stands to reason that there are hedge funds or other sophisticated investors out there who have calculated at what price they’d step in and purchase basis swaps if there truly is a glut and a need for some firms to get them off their books.In any event, even if there’s short-term volatility from the big bang, it will almost certainly be worth it, simply because of how much it moves the ball forward on the global shift from Libor, which is scheduled to happen at the end of 2021. When I wrote about SOFR soon after its introduction in 2018, it was a big deal that the World Bank issued $1 billion of two-year floating-rate notes tied to the new rate. Fast-forward to today, and more than $100 billion in notional volume of SOFR-linked swaps traded in September. Analysts fully credit the impending shift for this development, which they say will create a more liquid swap curve and make SOFR a more formidable alternative to Libor.In this context, the “big bang” isn’t so much a scary market-moving event as it is a necessary one-time jolt to get global markets ready for the reality of a post-Libor world, with a benchmark based on actual transactions rather than banks’ guesswork. SOFR has long been called the future for U.S. rate markets without nearly enough to show for it — a truly frightening proposition. In just a few days, the new benchmark may finally live up to the hype.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
