By Kymberly Martin

NZ swaps closed little changed on Friday. 2-year swaps ended the week down 6bps and 10-year down 4bps.

Short-end yields continue to sit close to their lows of the past 5 months, though still some 25bps off their all-time lows reached in early June.

The market continues to price a 25bps cut from the RBNZ by mid next year. There is not too much on the domestic agenda to impact on those expectations this week, three weeks out from the next RBNZ meeting and MPS.

This week’s domestic data are mostly 2nd tier in nature. However, the RBA minutes for November that are delivered tomorrow may shed further light on how close the RBA is to cutting again.

A cut at the early-December meeting is now 65% priced by the market. Any changes in expectation may also impact on expectations for an RBNZ cut on December 6 (currently 30% priced). We would put the probability at much lower than that.

On Friday night, US 10-year bonds continued to trade sideways at their key resistance level, just below 1.60% on yield. There will be plenty to potentially impact on US long yields this week.

The other key tests of risk appetite in bond markets will come from Europe this week.

European PMI data are delivered on Thursday followed by the German IFO survey on Friday. Altogether there is plenty to test markets, with Thursday’s Spanish bond auction providing a good barometer of current appetite for specific sovereign risk.