Two OCR markets go in...

TVHE makes the case for an RBNZ OCR cut in June. As usual, I look to the markets on this kind of question. Matt points to Credit Suisse, where the odds of a 25 BP move is backed out of OIS markets.

So if I'm reading that right, it's an 81% chance of a 25 BP cut (or a 40.5% chance of a 50 BP, or some mix, unless they've some particularly good way sorting out those kinds of issues).

If you drill down to today's trading, the market there looks less settled, with a trading range of about 51%-81%. Again, take the caveat that I don't know these markets nearly as well as Matt would. If I'm reading that right, the big money markets have better than even odds of an interest rate cut.

Meanwhile, here are the current iPredict odds on no change in the interest rate at the June meeting.

So Credit Suisse has a 50-81% chance of a cut; iPredict has a 60% chance of no change. Credit Suisse is where the big money plays are tallied; iPredict is more likely to have insiders.

I've done a bit of shorting on the no-change contract and have gone a bit long on the 25 BP cut, just on the basis of the price difference between the two markets. I'm not trading in OIS markets and doubt that iPredict could handle the volumes needed to run an arbitrage play across those; the minimum stake in OIS markets is unlikely to be small enough to make it feasible. And, I don't have a strong feel for which market is going to wind up being right.

It would be awfully fun to go back through all of the closed iPredict contracts to see whether they, or Credit Suisse, provide the better predictor of OCR changes. Another for the "future honours projects" file.