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Most notably, there is growing concern about the declining volumes of bank bills being traded during the rate set.
Using data sourced from NZClear (12) and the NZFMA, figure 2 shows the total monthly volumes of bank bills traded in the daily BKBM rate set, the total monthly volume traded between the participating banks (including the rate set) and the total monthly volume of bank bills traded among all market participants.
Peak turnover of bank bills as a percentage of total bills on issue was 7 percent in June 2013, but has fallen to 1.
to facilitate a switch of bank bills, which cannot be done as a part of the BKBM rate set.
As a specific example, consider a bank (ABC Ltd) that has raised $100 million worth of funds from issuing three month bank bills (see figure 2).
Unlike the more mature bank bill or Forward Rate Agreement (ERA) markets, there are no formal price-making arrangements in the 015 market.
Market sources suggest that turnover in the OIS market is between only five and ten percent of the turnover in the more established ERA and bank bill futures market.
Given that the Australian OIS market has been around longer, it is worth examining how accurate OIS rates are in predicting policy rates in Australia, compared with the more developed bank bill market.
The analysis discussed in this article uses bank bill rates for standard maturities, and interpolates those rates to obtain day-by-day term rates.
Ongoing analysis within the Bank suggests that the "term premium function" associated with New Zealand bank bill rates is roughly a "wedge shape" that increases with maturity.
Figure 3 represents an example of the calculation of OCR expectations implied from bank bill rates quoted on 24 May 2001:
The first line shows the dots indicating the quoted bank bill rates (as supplied by a wholesale interest rate broker) and the joining line shows the day-by-day bank bill rates calculated by linear interpolation.
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