NZ swap rates meander as markets await signals from the US Fed and BofE's Carney, US bond yields fall then partly recover

By Kymberly Martin

NZ swaps pushed down 1-2bps yesterday.

Overnight, US 10-year yields dipped below 2.53% after the release of US GDP but have returned to sit at 2.55%.

In the absence of domestic data releases, NZ swaps shifted down across the curve, with 2 and 5-year closing at 4.17% and 4.55% respectively.

We see fundamental 2-year ‘fair value’ at 4.40% based on our OCR track (reaching 5.0% by early 2016). However, near-term we expect to see receivers likely to return at 4.20%, capping yields.

In the NZ bond space the focus remains on the imminent launch of the new NZGB 2027 bond. In the run up to the actual issuance date (yet to be confirmed) we could see some selling of longer-dated NZGBs (21s,23s) in order to free up capacity. We would therefore not be buyers of NZGB23s on spread to AU or US ahead of the tender, despite spreads moving toward/above the top of recent ranges.

Overnight, the latest revision of US Q1 GDP was released. It showed GDP growth revised down to -2.9%q/q annualised (-1.8% expected). May durable goods also disappointed. US 10-year yields gapped from 2.57% to below 2.53% on the results but later returned to trade above 2.55%.

Today is another relatively quiet day on the domestic agenda, with only the RBNZ’s latest LVR data scheduled for release. Since regulations were implemented last October, high LVR loans have fallen well below the 10% ‘speed-limit’ enforced by the RBNZ.

Tonight, all eyes will be on the release of the US PCE deflator (the Fed’s preferred inflation measure). Consensus expects a tick-up to 1.8%y/y, keeping the Fed on its toes. It may also test the Fed’s Chair’s recent statement that the recent rise in US inflation indicators was “noise”.

Elsewhere, all eyes will be on the Bank of England’s Governor, Carney, as he speaks in London. He has recently come in for some flak by seeming to flip-flop on when the Bank envisages raising rates. The market currently prices a first hike by February next year.