By Kymberly Martin
NZ yields closed down 2-8bps yesterday. Overnight, US 10-year yields traded from 2.37% to 2.39%.
There was increased speculation over the presence of the RBNZ in currency market at the start of the week that prompted the sharp step down in the NZD. This helped push yields lower across the swap and bond curves.
The logic appears to have been, if the RBNZ is attempting to bring the currency down (inflationary) then this is inconsistent with further rate hikes any time soon (to reign in inflationary pressures).
We would be wary of pushing this logic too far. The NZ TWI has now fallen toward levels the RBNZ had forecast for its Q1 2015 average.
All else equal, a lower currency removes one impediment to future rate hikes. This is particularly the case when it is not just the RBNZ’s ‘pause’ that has driven the NZD lower.
A stronger USD and softer NZ commodity prices are also primary reasons for the NZD’s fall since July.
NZ 2 and 5-year swap closed at 4.03% and 4.36% respectively. The 2-10s curve flattened slightly to 56bps.
Across the Tasman, AU yields also pushed lower on the day, suggesting there was also an offshore element to the decline in NZ yields yesterday. The yield on NZGB23s declined 8bps to 4.16%.
Overnight, US Treasuries seemed to largely ignore data delivery in the form of durable goods and consumer confidence. US 10-year yields were little moved, trading from 2.37% to 2.39%.
Today, only NZ food prices will be released domestically. AU construction work data is also due for release.
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