By Kymberly Martin
NZ swap and bond yields closed up 2-5 bps, with a continuation of the curve steepening seen in recent days.
Overnight US 10-year yields largely tracked sideways.
Both NZ and AU yields pushed higher yesterday following the previous night’s rise in US yields.
The move was expressed more strongly at the long-end of the NZ curve. The short-end remains relatively well anchored by expectations the RBNZ will present a more dovish tilt at tomorrow’s RBNZ meeting.
We expect its published 90-day bank bill track will imply a later resumption of OCR hikes (our central view is for March 2015).
The RBNZ may also lower the implied peak OCR for this cycle, previously shown, at 5.0%, at least.
Consequently 2-year swap closed up just 2 bps, at 4.09%, while 10-year closed up 5 bps, at 4.72%. This has taken the 2-10s curve to 63 bps, its highest level since mid-August.
Strategically, we see further flattening to below 50 bps by early next year. The near-term risk is of further steepening, if US yields continue their drift higher.
Overnight, in the absence of key US data releases, US 10-year yields traded a fairly tight range between 2.48% and 2.51%.
Meanwhile, US 2-year bond yields have pushed up to 56 bps, back toward late July highs. Futures see the Fed funds rate at 0.25% by May next year.
It’s all quiet on the domestic agenda today, ahead of this week’s highlight, the RBNZ meeting tomorrow. Tonight, in a relatively light US data agenda, a scheduled speech by former Fed President, Bernanke, may gain some attention.
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