by Kymberly Martin
Friday was a quiet end to the week in NZ markets. On Friday night, renewed interest in “safe haven” bonds saw US and German 10-year yields decline.
There was little action in NZ swap markets on Friday, with yields closing almost unchanged. Last week was all about consolidating the significant February rise in yields, ahead of this week’s RBNZ meeting. 2-year yields have been consolidating just under the 3.10% level, and 5-year around the 3.80% level. The 2s-10s curve remains around 140bps.
The market continues to price 25bps of RBNZ rate hikes in the year ahead. This Thursday’s RBNZ MPS will be dissected, and may act as a catalyst for the next leg up in swap yields.
We expect the published 90-day bank bill track to push back the starting point of rate hikes, from the previously implied September start. However, we still expect a clear and steady upward trajectory to be shown once hiking does start.
The yield on NZGB21s finished the week at 4.17%. NZ-US 10-year bond yield spreads are revisiting 220bps, their highest point since November. NZ-AU 10-year bond spreads sit at 5bps, comfortably in the middle of their 10bps to 15bps trading range.
In a backdrop of general waning risk appetite on Friday, US and German “safe haven” 10-year bonds attracted renewed demand. Yields declined from 2.03% and 1.86% to 1.97% and 1.80% respectively.
Expect NZ short-end yields to be range-bound ahead of Thursday’s RBNZ meeting, which may act as a catalyst for the next leg higher in short-end yields.
Given moves seen in offshore yields on Friday, expect NZ long-end yields to open the week under downward pressure.
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