By Kymberly Martin
In a quiet day of trading, NZ swaps and bonds closed virtually unchanged yesterday.
Overnight, US 10-year yields traded a tight range.
NZ 2 and 5-year swap closed at 4.20% and 4.59% respectively.
Yesterday’s ANZ business survey confirmed slowing momentum in the NZ economy. This may draw offshore receivers back into the NZ market, capping short-end yields below ‘fair value’. We continue to see 2-year ‘fair value’ at 4.4% based on our OCR forecasts.
Today marks the first day of the 2014/2015 fiscal year. The NZ DMO previously announced they intend to launch their new 2027 bond in the first half of 2014/2015. We are therefore alert to the potential for further announcements soon.
Overnight, there was limited reaction to release of Eurozone CPI data. Yields on German 10-year bunds remain near historic lows, at 1.25%.
Meanwhile US 10-year yields briefly spiked above 2.54% overnight after stronger than expected US pending home sales data for May (6.1%m/m vs. 1.5% expected). Subsequently yields have returned to trade at 2.52%.
Today, there are no domestic data releases scheduled. Across the Tasman we anticipate the RBA will maintain its neutral stance. But we anticipate it will keep alive the debate about whether monetary policy is accommodative enough to rebalance the economy.
The market currently prices a 35% chance of a 25bps rate cut from the RBA in the year ahead. We agree the chances of a rate cut are higher than of a rate hike in the coming year.
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