By Kymberly Martin
It was a quiet day in NZ markets ahead of the key risk events this week i.e. tomorrow’s US FOMC meeting and the release of NZ Q2 GDP. NZ yields closed up 3bps across both the swap and bond curves.
NZ 2 and 5-year swaps remain close to their cyclical highs at 3.56% and 4.53% respectively.
The 2-10s curve remains fairly steep at 155bps. The long end of the curve continues to be highly influenced by moves in US long yields.
Overnight, US benchmark 10-year bond yields tracked a very tight range between 2.83% and 2.87%.
The market appears reticent to re-position ahead of tomorrow morning’s (NZT) US FOMC meeting. A reduction of asset purchases in the order of $5-$10b is expected from the Fed.
At the meeting the Fed is also expected to introduce its 2016 forecasts. These may gain equal, if not more scrutiny from markets.
However, the Fed will likely be at pains to show the cash rate remaining fairly low through the forecast period, even once asset purchases are complete. In this case, US 10-year yields may struggle to successfully test the 3.0% level that has marked their highs year to date.
For today, the domestic focus will be delivery of NZ current account data. This evening the Bank of England will release its latest minutes. More broadly the market will be holding its breath ahead of tomorrow’s US FOMC announcement.
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