By Kymberly Martin
NZ swaps and bonds closed down 2-5bps across the curve yesterday.
Overnight, US 10-year yields traded a tight range to sit at 2.57% at present.
Data wise there was little to drive the NZ market yesterday. Yields drifted lower on the back of the previous night’s shift down in US yields. While the RBNZ is seen firmly ‘on hold’ for now, there is diminished ‘real economy’ paying to offset receiving interest in swaps.
NZ 2 and 5-year swap closed down 4 bps, at 4.03% and 4.40% respectively. For borrowers we continue to see hedging opportunities below 4% on 2-year swap.
Yesterday’s RBA minutes were largely as expected. They repeated key themes: house prices and credit are still rising; there are better signs for confidence and non-mining capex intentions; but unemployment and the AUD are still too high. Overall, the RBA is still anticipating that “the most prudent course was likely to be a period of stability in interest rates”, so they are on hold for a long time.
The RBA is however becoming slightly more concerned about the growth in house prices that “warranted ongoing close observation”. House prices are clearly the main hurdle for the RBA to cut. The market continues to price less than a 20% chance of a cut in the year ahead.
Overnight, in the backdrop of positive US equity markets, US 10-year yields were fairly range-bound. US 2-year yields dipped around 2 bps after Fed commentator (Hilsenrath) suggested the Fed will likely not drop the “considerable time” code words from its rhetoric i.e. to describe the time between the end of QE tapering and the start of rate hikes.
US 2 and 10-year yields sit at 0.53% and 2.57% respectively.
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