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Extended OCR pause expected now; bond rate cues to come mainly from offshore; risks favour lower track

Bonds
Extended OCR pause expected now; bond rate cues to come mainly from offshore; risks favour lower track

By Raiko Shareef

NZ interest rates largely took their cues from the offshore set on Friday, with the longer end of the curve rising in line with the 5 bp increase in US 10-year Treasury yields.

The NZ 10-year swap yield rose by 3 bps to 4.68%.

The 2-year swap yield was unchanged at 4.08%.

The short-end of the NZ curve continues to be anchored by expectations of a softer line being taken by the RBNZ at this week’s meeting. We expect the RBNZ to keep the OCR on hold on Thursday, and expect communication to reflect that the Bank will be on an extended pause.

We see the next hike in March 2015, with the OCR eventually rising to 4.75% in early 2016 (from 3.50% today).

Even after adjusting our track lower last week, we consider the skew of risks to our view still favouring a lower OCR track.

Global bond yields were little changed on Friday night, with the bias still for higher yields.

The US 10-year Treasury yield was 1 bp higher at 2.46%

Other news:
* Canadian employment change -11k vs +10k exp.
* German industrial production +1.9% m/m vs +0.4% exp.

 
 
 
 
 
 
 
 

Daily swap rates

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Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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