By Kymberly Martin
NZ swaps closed down 1-3 bps yesterday. Overnight, the market treaded water ahead of this morning’s US FOMC meeting.
Receiving interest remains at the short-end of the NZ curve as the market accepts the RBNZ is ‘on hold’ for a prolonged period.
That said, we still see attractive opportunities for borrowers to hedge if 2-year swap falls below 4.00%. NZ 2 and 5-year swap closed at 4.03% and 4.39% respectively.
NZ bond yields closed down 1 bps across the curve as the market had its eye on two events; this morning’s US FOMC meeting and today’s NZDMO bond auction.
The DMO announced the auction will be for NZ$200m of their newest 2027 maturity bond. This is the first time the bond is available through tender since it was initially syndicated a couple of months ago.
Overnight, unsurprisingly, there was little action ahead of the long anticipated US FOMC meeting at 6am (NZT). However, US 10-year yields dipped slight, to trade at 2.56% after a low-side US CPI reading.
At its meeting this morning the US FOMC kept the “considerable time” code words to describe the period between the end of QE tapering and the anticipated start of rate hikes.
However, the Fed’s median forecast for the Fed Funds Rate has been revised up. From 1.125% for the end of 2015, the ‘dot points’ now show 1.375%. It also introduced its 2017 estimates for the first time. These show the FFR at 3.75% at the end of 2017, in line with the Fed’s long-run estimates.
These projections are some way above Fed Funds Futures which currently price a 0.75% FFR at end 2015, and 2.44% FFR by August 2017.The initial response was for a 4-5 bps push higher in yield across the Treasury curve, which has now extended.
US 10-year yields sit at 2.62%.
Today, the domestic market will absorb the implications of this morning’s FOMC meeting, but then it will be all eyes on the 2Q release of NZ GDP (10.45am NZT). Even though the data is historic, and 3Q looks stronger, the outcome may prompt the market to further inch down expectations for future OCR hikes.
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