By Kymberly Martin
It has been very quiet across domestic and global rates markets over the past 24-hours.
Yesterday, NZ bond markets closed virtually unchanged. Swap yields closed down 3-4bps across the curve, pulling back from year-to-date highs.
Once again today there is little on the domestic front to impact on market pricing. However, across the Tasman there will be two notable events for interest rate markets.
First the NAB business confidence survey will be released. This may help inform market expectations for future RBA activity. The market currently prices a further 25bps cut from the RBA in the year ahead. This is consistent with our own view, and would take the RBA’s cash rate below the RBNZ’s. Historically, this situation is the ‘norm’ rather than the exception.
The AU pre-election economic and fiscal outlook will also be released. This may have implications for the supply of AU government bonds.
Irrespective of supply issues we see AU bonds outperforming NZ equivalents in the year ahead. We see NZ bond yields driven higher on a relative basis by the more aggressive cash rate outlook on this side of the Tasman.
We see NZ-AU 10-year bond spreads peaking above 80bps next year (currently 64bps).
Markets were very sleepy overnight. US 10-year yields traded a 2.55% to 2.59% range, currently sitting at the top of this range.
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