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NZ swaps up, UST 10yr yields up, markets see an RBA cut by year end, eyes on NZ CPI today

Bonds
NZ swaps up, UST 10yr yields up, markets see an RBA cut by year end, eyes on NZ CPI today

By Kymberly Martin

In another relatively quiet day in NZ markets, swap and bond yields closed up 1-2 bps.

Overnight, US 10-year yields rebounded from intra-night lows to trade at 2.24% currently.

NZ 2 and 5-year swap closed at 2.96% and 4.22% respectively yesterday. The 2-10s curve sits slightly steeper at 47 bps.

Yesterday’s AU CPI came in line with expectation, with the underlying rate at 0.5% (2.6%y/y). The outlook for activity and wages means the inflation outlook remains contained. The annual underlying pace continues to edge lower, and is on track for the RBA’s 2.25% forecast for end-2014. The market now prices around a 45% chance of a 25 bps cut from the RBA in the year ahead.

Overnight, the Bank of Canada left its cash rate unchanged, at 1.0%, as expected. The Bank of England released its most recent Minutes. These showed members saw increased risk to the UK economy from the malaise in the Eurozone. Seven members voted in favour of keeping the cash rate at 0.5% while two voted in favour of a hike. UK 10-year bond yields sit around 2.20%, having rebounded quite sharply in recent days. US equivalents also extended their rebound overnight, to trade at 2.24% this morning.

Today the focus for the domestic market will be the release of NZ Q3 CPI. We, along with consensus expect CPI to dip to 1.2% in the quarter from 1.6% previously. We see the risks as tilted to the low-side of this outcome.

The market risks misinterpreting this data as the start of a downtrend in NZ inflation. Despite recent downward revision to our CPI forecasts, we still see CPI returning to the RBNZ’s mid-band target (2%) by late 2015. We see inflation peaking at 2.6% in 2016.

Offshore the focus will be Manufacturing PMI data due from China, Eurozone and the US today/tonight.

 
 
 
 
 
 
 
 

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA

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