By Kymberly Martin
NZ swaps closed down 2-3bps on Friday.
US 10-year yields traded a 2.50-2.53% range on Friday night.
There continues to be steady paying at the front-end of the NZ curve via the mortgage sector. However, on Friday 2-year swap closed down 2bps, at 4.18%.
We suspect receiving interest may keep swaps capped at 4.2% in the near-term.
However, we continue to see ‘fair value’ at 4.4%, based on our expectations the OCR will reach 5% by early 2016.
NZGB yields closed down 5-7 bps across the curve. This reverses a ‘heavy’ tone in the market in recent days.
The respective moves in swaps and bonds saw swap-bond spreads widen further.
The gap between NZGB23s and the equivalent swap now sits at 42 bps, up from a recent trough below 35 bps.
On Friday night, US 10-year yields, dipped as low as 2.5% ahead of the release of the University of Michigan consumer confidence survey. A solid reading (82.5 vs. 82.0 expected) then spurred a rebound in yield to 2.53%. CFTC data showed speculative short positions in US 10-year Treasuries have reduced from 85.8k a week ago to 27.3k currently.
Reduced shorts suggest yields will be more inclined to rise on any upside data surprises.
This week will be all about US non-farm payrolls, to be released on Thursday eve, ahead of US Independence Day.
Closer to home, one of the week’s data highlights will be today’s ANZ business survey. We would not be surprised to see a further decline in the headline number. Although this would still be highly elevated in an absolute sense the market may be inclined to respond to the loss of momentum. This could see the market inch down rate hike expectations.
NZ building permits and credit aggregates will also be delivered today.
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