By Kymberly Martin
It was an extremely quiet start to the week. Yields followed offshore moves, closing down 3-4bps.
NZ 2 and 5-year swap closed at 3.47% and 4.47% respectively.
The market continues to price a first RBNZ rate hike by March next year, with more than 75bps priced for the year ahead. This falls short of our expectation for 125bps of hikes over the period.
However, in the near-term we see the market biased to reduce rather than increase expectations for rate hikes.
First, the RBNZ is unlikely to present a particularly hawkish tone this week as it waits to see its new LVR regulations ‘bite’. Second, we now see a technically soft Q2 GDP print next week (-0.2%q/q). Third, US benchmark yields appear to be in a process of consolidation ahead of next week’s FOMC meeting.
In this regard, in a data-light evening US 10-year yields continued to drift lower from last week’s highs close to 3.0%. Yields sit around 2.90% this morning.
Moving back to NZ, the Local Government Funding Agency (LGFA) released details of their Wednesday tender. A smaller volume is on offer than at previous auctions, spread across a number of maturities: $10m 2015s; $15m 2017s; $30m 2019s; $60m 2021s.
Given the outcome in recent tenders, investors may be looking for wide ‘tails’ in the bidding for the longer maturity bond. However, the shorter maturities will likely be easily absorbed by investors.
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