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Markets confused over likely RBA signal; will react whatever outcome. Markets see RBNZ needing to react to whatever RBA recides

Bonds
Markets confused over likely RBA signal; will react whatever outcome. Markets see RBNZ needing to react to whatever RBA recides

By Kymberly Martin

NZ yields closed flat to down 1 bps yesterday.

In the early hours of this morning US 10-year yields pushed up from 2.0% to 2.07%.

It was a relatively quiet day in NZ rates markets with no discernible response to the release of NZ terms of trade data.

The longer end of the curve may be starting to gain some attention due to its recent widening out on spread to AU equivalents. e.g. NZ-AU23s had pushed out toward 100 bps.

Overall, NZ 2-year swap closed little changed at 3.58% while 5-year closed down 1 bps at 3.65%. The curve remains fairly flat across its length, limiting the upfront cost in extending hedging. The 2-10s swap curve closed the day at 18 bps.

US yields pushed higher in the early hours of this morning after the release of a solid US Markit Manufacturing PMI. There was likely relief it was not weaker after the soft showing from Friday’s Chicago PMI.

10-year yields trade at 2.07% currently from intra-night lows below 1.99%.

This may exert some upward pressure at the long-end of the NZ curve this morning.

Most of today’s attention will fall on this afternoon’s RBA meeting. The market is now pricing around a 60% chance of a 25 bps cut, as follow-up to that delivered in early Feb.

With pricing relatively evenly balanced, expect a sharp market reaction, whatever the outcome.

NZ OCR pricing and short-end rates will directionally follow AU moves.

If the RBA were to deliver a cut then the market will likely increase pricing or an RBNZ cut. Currently the market prices almost an 80% chance of a cut in the year ahead.

 

 

 

Daily swap rates

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Opening daily rate
Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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