By Kymberly Martin

NZ swaps closed up 2-4bps yesterday, and curve steepened. Overnight, US long yields again failed to break higher.

NZ short-end NZ swaps inched a little higher, with 2-year closing at 2.92% yesterday. However, there remains reluctance for yields to break higher.

Reduction in bank funding costs in recent months is likely feeding through to borrowers, offsetting the rise in underlying swaps since late last year. 

Still, at this point there remains only a modest flow of borrowers moving to ‘fix’. Participants will likely have to perceive OCR hikes as fairly imminent, before a wave of paying activity occurs, that could then push swaps much higher.

The 2-10s swap curve has steepened a little further to 112bps. Save a break higher in US long-yields (that would drag up NZ long-yields) we would look to reposition for curve flattening as we approach 120bps.

The data with the greatest potential to impact US yields tonight is January US advance retail sales. The market expects a modest 0.1%m/m result. Any upside surprise could nudge yields higher.

There will also be plenty of ‘Fed-speak’ with the potential to impact on markets. With the more hawkish leaning Fed officials Plosser, Lacker and Bullard all scheduled to speak tonight, look out for potential sound-bites. There are no domestic data releases.