US 10-year bond yields slipped back to 1.84%, close to the bottom of their range since the start of the year

By Kymberly Martin

The NZ swap curve has flattened notably over the past week.

Long-end yields followed offshore (US) long yields lower, while short-end yields have begun to stabilise.

The 2-10s curve now sits around 110bps, down from mid-March highs close to 130bps. 2 and 5-year swap sit around 2.85% and 3.37% respectively, 20-30bps off their mid-Feb highs.

Further declines in yield will likely be limited by paying interest from ‘real’ money using the dip as an opportunity to hedge against future rate rises.

The market currently prices around a 30% chance of the OCR being 25bps higher in a year’s time. We continue to expect a first OCR hike in March next year, and steady hikes thereafter.

In quiet Easter Monday trading, the US ISM Manufacturing Index was delivered overnight. Clinging on in expansion territory (51.3) it nevertheless disappointed expectations (54.0).

US 10-year bond yields slipped back to 1.84%, close to the bottom of their range since the start of the year. This will likely see flattening pressure on the NZ curve remain.

It is a relatively quiet week domestically. Today’s WMM employment confidence index will be of interest given the mixed messages current data are sending on the NZ labour market.

This afternoon (4.30pm NZT) the RBA announces its cash rate.