By Kymberley Martin
It was a relatively quiet end to the week in NZ fixed interest markets, with yields little changed on Friday.
US 10-year yields ended the week at 2.53%.
NZ 2-year swap continues to hover below 4.00%, while the yield on 10-year sits at 4.80%.
We are now less than three weeks away from the next RBNZ meeting. The market prices almost a 90% chance of a further 25bps hike at this meeting, which we concur with.
However, we feel the market now under-estimates the extent of rate hikes likely in the next couple of years.
The market prices only around 130bps of rate hikes over this period. We see 200bps, even accounting for the chance that the RBNZ slows its near-term progress due to the stubbornly high NZD.
Meanwhile, the yield on NZGB23s sits at 4.33%, around 10bps off its lows earlier last week.
This move has occurred as the yield on ACGB24s has risen around 13bps, to sit at 3.78%. (ACGBs are Australian Commonwealth Government Bonds.)
We reiterate that we would now be shortening NZGB duration as we find long-end yields at these levels difficult to justify. This is despite the fact that US 10-year yields continue to dabble just above the 2.50% level.
It looks to be a quiet start to the week with both the UK and US celebrating holidays today.
Locally today, the RBNZ will release April’s LVR data. Since implementation in October last year, high value loans have fallen well below the 10% ‘speed-limit’ set by the RBNZ. The March reading stood at 3.6% of total loans (ex-exemptions).
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