By Kymberly Martin
The NZ swap curve flattened slightly on Friday as yields declined. US 10-year yields closed the week at 2.74%.
In a fairly quiet day domestically, NZ swaps closed down 1-3bps with a flattening bias to the curve. 2 and 5-year swap now sit at 3.85% and 4.58% respectively.
We expect these to trade at 4.60% and 5.20% respectively by year-end. These forecasts are consistent with our view the OCR will be 125bps higher by year-end, at 3.75%, following a first rate hike on March 13.
NZ 10-year bonds remain in the lower end of their expected 2.50-3.00% trading range. They ended the week at 4.59%, at a spread to AU and US equivalents of 59bps and 185bps respectively.
On Friday night, US data releases were mixed, but failed to provide any great reaction from Treasuries. US 10-year yields traded a fairly tight 3bps range over the night to end the week at 2.74%.
Fed fund futures continue to price a first rate hike from the US Fed in early 2H 2015.
There is a bit more on the NZ data schedule this week, kicking off with 4Q retail sales today. We are looking for a fairly hefty 1.6%q/q result, while consensus looks for 1.7%. Our forecast would see volumes rise 4.1%y/y.
This, combined with a PSI release today, that will likely show the services sector still firmly in expansion, should lend an upward bias to local yields today.
It may be a quieter night however with the US celebrating Washington’s Birthday holiday.
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