By Raiko Shareef
NZ swaps fell in sympathy with the rally offshore on Friday night.
The curve was squeezed lower by 3 bps – 5 bps.
The 2-year swap yield closed 3 bps lower at 3.99%, breaking the psychologically significant 4.00% mark, which provided firm support through August and September.
The 5-year swap yield also broke below the key 4.28% level to close at 4.24%.
The market continues to foresee a less aggressive OCR track than we do, but we do not see any near-term catalysts for higher yields. Still, we consider the current lowly levels for the 2- and 3-year swaps as providing attractive risk-reward for payers with a medium-term view.
Interest rate markets continue to push out their expectations of Fed Funds Rate hikes, as global growth concerns weigh.
Fed Funds futures now show the odds of a September rate hike at 46%, down from 56% last week, and 67% two months ago.
Data highlights today include NAB’s Australian business confidence reading, and Germany’s ZEW survey.
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