By Kymberly Martin
Ahead of Friday night’s US payrolls data, NZ swaps closed up across the curve, as US 10-year yields had been reaching toward the 3.0% level.
On the week, NZ 2-year swaps were 10bps higher at 3.51%, but still a little below their mid-August highs. However, 10-year swaps closed up 19bps on the week, at 5.12%, to be close to their highs since August 2011. The 2-10s curve, at 161bps, is also at its steepest level since late 2011.
NZ bonds were also weak. The yield on NZ 10-year bonds rose 17bps on the week to close at 4.72%, also its highest levels since August 2011. There remains a lack of buyers of NZ bonds.
However, following the weaker-than-expected US payrolls data (early Saturday morning NZT), US 10-year yields (that had touched 3.0% earlier in the evening) gapped from 2.96% to 2.86% before finding some composure.
They ended the week at 2.94%. This may exert some downward pressure on NZ yields at the start of the week. However, with the US ‘tapering’ debate still alive and well, it is unlikely a severe pull-back in yields will ensue.
Rather, this week, attention will return to the domestic economy with the RBNZ’s Thursday meeting the highlight of the local calendar.
As at the end of last week the market was pricing a first 25bps OCR hike in March next year with almost 100bps of hikes by this time next year. This is fairly consistent with our own view, but well ahead of the RBNZ whose last published forecasts had a first hike implied for Q3 next year. We suspect these forecasts will be amended in this week’s MPS.
For today, the market will take its cue from Friday’s offshore moves. Today’s 2Q NZ manufacturing data and QV house prices are unlikely to be major market moves.
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