Pull-back in rates may extend beyond the RBNZ meeting as a hike pause is expected until after the election

By Kymberly Martin

In a fairly quiet day of trading, NZ swap and bond yields closed down 3-6 bps.

NZ swaps have drifted lower in the run-up to tomorrow’s RBNZ meeting. NZ 2 and 5-year swap closed at 4.11% and 4.50% respectively.

We will not be surprised to see this pull-back extend beyond the RBNZ’s meeting, as the Bank indicates it is on open-ended ‘pause’ after a further 25 bps hike tomorrow.

However, any dips in 2-year swap below 4% we would assess as hedging opportunities. We continue to see ‘fair value’ circa 4.40%.

There was a fairly strong bid tone in NZGBs yesterday. NZ bond yields closed down 4-6 bps across the curve.

The yield on NZGB23s now sits at 4.26%, not far from late May lows. NZ-AU and NZ-US23s spreads have narrowed further to 98 bps and 197 bps respectively.

Overnight, after US core inflation undershot expectations, US 2-year Treasury yields closed down 2 bps at 0.475%. US 10-year yields closed little changed at 2.47% after a brief intra-night interlude above 2.50%.

Today, there is no data scheduled on the domestic front. Across the Tasman the key focus will be the release of AU CPI data.

Tonight there are no US data releases but the UK Bank of England Minutes will be released.