By Kymberly Martin
NZ swaps ended 2-3 bps higher in quiet trading on Friday.
Offshore markets were directionless as the US celebrated Independence Day.
The NZ curve opened higher in yield after the previous day’s offshore moves, inspired by US payrolls data.
However, markets failed to push on during the day. NZ 2-year swap closed at 4.24% and 5-year at 4.66%.
The 2-10s swap curve sits a fraction steeper at 72 bps.
We believe 2-year remains below ‘fair value’, of 4.40%, but we are wary of offshore receivers being tempted back into the market to cap yields near current levels.
The next big test for the market’s OCR expectations will come with tomorrow’s Quarterly Survey of Business Opinion. We expect this to hold up well.
However, the survey’s direct inflation indicators many well be restrained, for the meantime, by the high NZD. This may embolden receivers.
In the absence of trading in the US Treasury market on Friday night, German bund yields drifted lower. From 1.29%, the yield on 10-year bunds ended the week just above 1.26%. This remains not far from historic lows as the market anticipates easy policy from the ECB for the foreseeable future as it fights deflation risk.
It is a quiet start to the week. Domestically, QV house price data will be released today. There are no key US data releases scheduled for tonight.
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