By Kymberly Martin
NZ yields closed flat to down 2bps on Friday. US 10-year yields ended the week at 2.40%.
There was very little activity in the NZ market on Friday as it awaited the week end’s Jackson Hole meeting in the US. NZ 2 and 5-year swap ended the week at 4.09% and 4.43% respectively.
We see fair value’ around 4.50% and 4.60% respectively. This is based on our forecasts for an OCR that reached 5% in 2016.
The 2-10s curve sits slightly off its lows of last week at 60 bps. We continue to expect this spread to flatten to a cyclical trough of 40 bps by mid next year. However, the risk of near-term steepening is presented by the NZ long-end following any rebound in US long yields.
That there was some ambiguity in Yellen’s Jackson Hole comments, and that they were not outright dovish, helped push US yields higher.
US 2-year bond yields rose from 0.47% to 0.49%. US 10-year yields pushed up from 2.38% to 2.44%.
However, yields later returned to 2.40% after headlines announced that Russia has 18K of troops on the Ukraine border. At the same time, the Russian ‘aid’ convoy was reported to have entered Ukraine without authorisation.
There are no local data scheduled today. Tonight the German IFO survey will be released along with the US Services PMI and new home sales data.
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