By Umesh Desai
HONG KONG, Nov 24 (Reuters) - Thai interest rate swaps continued their fall across maturities on Tuesday as positions built during earlier weeks in anticipation of rate increases were reversed.
In New Zealand, swap rates and bond yields rose after a survey showed inflation expectations for the next two years have jumped sharply, and that the economy will post improved growth next year.
Thailand's one year swap fell 6 basis points to 1.39 percent, the lowest since April 2004. Swaps have fallen nearly 30 basis points since the start of the month.
The fall was across the curve with the 2-year swaps down a hefty 10 basis points at 2.06 percent.
"The curve was very steep, pricing in too much recovery and expectations of a rate hike," said a Bangkok-based fund manager.
"It is now retracing back that move and cutting expectations that fiscal policy will suck a lot of money out of the system," he said referring to earlier expectations the government will go on an aggressive fund raising programme to finance expenditure.
But those spending plans were slowing down due to bureaucratic snags and political distractions, he said.
The Thai bond curve steepening between July and mid-October as the market prepared for an eventual rate rise. The spread between 5- and 1-year bonds more than doubled to more than 2 percentage points.
As interest rate expectations are pushed out later into 2010 or into 2011, these bets of higher interest rates in the immediate term are being unwound, dealers said.
NEW ZEALAND
The quarterly survey of expectations on behalf of the Reserve Bank of New Zealand (RBNZ) showed business managers forecast annual inflation to average 2.1 percent over the coming year, from 1.8 percent in the August survey.
The survey also showed economic growth is expected to pick up, with gross domestic product rising 1.7 percent in the coming year from 0.8 percent in the previous survey.
One-year swaps rose to 3.42 percent from 3.41 percent and the 2-year rose 3 bps to 4.41 percent.
The 10-year bond yield rose one basis point to 6.035 percent.
"Today's data will provide rich ammunition for those calling for higher rates from the RBNZ, warning of the risks of a top-side breakout in inflation," said Sean Keane, director of Triple T Consulting and former money market trader at Credit Suisse, said in a note.
He expects the bank to leave rates unchanged at both the December and January rate meetings, but could move if the next survey at the end of February 2010 shows a further increase in inflation expectations.
"Then market pricing for the March rate meeting will move beyond the 9 bp that is currently implied."
RBNZ has held rates at a record low 2.5 percent since July and has repeatedly said it expects to hold them there until the second half of 2010. (Editing by Jan Dahinten) ((umesh.desai@thomsonreuters.com; +852 2843 6935; Reuters Messaging: umesh.desai.reuters.com@reuters.net; )) (If you have a query or comment on this story, send an email to newsfeedback.asia@thomsonreuters.com)