Kiwi Traders Learn the Hard Way That Holding Your Nerve Pays Off

(Bloomberg) -- The Reserve Bank of Australia’s decision to keep policy on hold on Tuesday led traders to trim bets its New Zealand counterpart would cut interest rates. That proved a mistake.

Odds the smaller nation’s central bank would ease were cut to 30 percent from about 50 percent on Monday. As it turned out, the Reserve Bank of New Zealand went ahead and eased policy Wednesday, sending two-year bond yields down as much as 10 basis points to a record 1.32 percent and two-year swap rates down by as much as 19 basis points.

While traders may have been wrong to backpedal before the RBNZ decision, another group of market players were pretty much spot on.

Strategists at JPMorgan Chase & Co., Bank of America Merrill Lynch and Westpac Banking Corp. were among those recommending investors position for New Zealand short rates to fall more than those in Australia. That is exactly what happened.

To contact the reporter on this story: Stephen Spratt in Hong Kong at sspratt3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds, Shikhar Balwani

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