By Kymberly Martin
NZ swaps pushed higher from the open on Friday to close up 8-9bps across the curve.
On Friday night, US 10-year yields drifted lower to close at 2.64%.
On Friday, NZ delivered strong trade data and RBNZ Wheeler’s speech confirmed a 200bps hiking cycle will soon be necessary. Combined, this saw NZ swaps close a leg higher across the board. 2-year swap, at 3.86%, is trading toward cyclical highs (3.88%) achieved at the start of the year.
The 2-10s swap curve sits at 123bps, a level around which it has consolidated over the past week.
On Friday night, there was a little more stability in emerging market currencies but risk aversion still dominated markets. As equities provided negative returns, US Treasuries remained bid, despite a generally solid tone in US data.
US 10-year yields declined from 2.70% to close at 2.64%, their lowest level since early November. We continue to see a 2.50-3.00% range containing yields in the months ahead.
This week, Wednesday’s Q4 labour market data will take centre stage domestically.
We anticipate the unemployment rate will fall to 6.0% and potential for general signs of heat in the survey.
This could be sufficient to propel further upward momentum in NZ short-end yields.
Today, there is a swathe of 2nd tier AU data to be released ahead of tomorrow’s RBA meeting. The Bank is widely expected to remain on hold but maintain its gentle easing bias.
Tonight, EC PMI manufacturing data will be released along with the US ISM equivalent.
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