By Kymberly Martin
It was a relatively muted day in the NZ market yesterday.
Overnight, US 10-year yields traded a tight range to sit at 2.32% currently.
With little on the domestic front to drive swaps yesterday they closed little changed. 2-year swap closed at 3.88%.
Despite the previous night’s push higher in offshore yields, a solid bid tone remained for NZGBs. The yield on NZGB23s closed down 1 bps, at 3.98%, not far from October lows.
Across the Tasman, the RBA provided little surprise when leaving its cash rate at 2.5% for the 15th consecutive month. Its statement showed no substantial changes, and it reiterated it sees inflation under control “running between 2 and 3 percent”.
We expect the Bank to remain on hold for most of next year, with the hurdle for any further rate cuts being very high. The market still prices around a 40% chance the RBA will cut again by the 2nd half of next year.
Overnight, in the backdrop of slightly soggy equity markets US yields traded with a slight downward bias. From intra-night highs closed to 2.35%, US 10-year yields now sit at 2.32%.
Today, the LGFA (Local Government Funding Agency) will hold its latest auction. $10m of 2019, $25m of 2020, $35m of 2021 and $90m of 2023 bonds will be on offer. Demand should be fairly well supported, given general lack of bond supply in the NZ market, and limited underlying domestic rate risk at present.
Tonight, rates markets will likely look to the US ADP employment report as a precursor to Friday’s US payrolls. A solid October number may extend the rebound in US yields seen since mid-October.
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