Introducing overnight indexed swaps
Last year, a new type of financial instrument - the Overnight Indexed Swap (OIS) - was introduced to New Zealand. This article is intended as a primer, explaining what the OIS is and how it is used by market participants to manage interest rate risks and to take a view on the direction of the Official Cash Rate (OCR). From the Bank's perspective, we are most interested in using OIS yields to derive estimates of market expectations of the OCR. This article also highlights developments in the New Zealand OIS market to date.