By Kymberly Martin
It was a relatively quiet end to the week in the NZ swap market as yields closed up around 1 bps across the curve.
On Friday night US 10-year yields closed at 1.95%.
NZ 2-year swap ended the week at 3.51%. Since the start of February, it has traded a 3.46%-3.66% range.
In coming weeks we see it trading toward, or even below, the bottom of this range, as domestic inflation indicators remain subdued.
However, as we move into the H2 we ultimately see yields trading a little higher, as the RBNZ remains on prolonged hold rather than delivering the rate cuts the market currently expects. The market currently prices a 25 bps rate cut by this time next year.
On Friday night, in the absence of key US data releases, US 10-year yields briefly dipped below 1.92%. However, they rose into the close, possibly assisted by comments from US Fed’s Lacker (hawk). He said he still favours a first rate hike in June as he expects recent US data weakness will prove temporary.
Also, when asked about the March Minutes that documented “several” members as favouring a June hike, he said several was “a pretty substantial amount in my recollection”.
We continue to see a total of 50 bps of Fed rate hikes by year-end, taking the top of the Fed’s target band to 0.75%. Fed fund futures price a 0.38% FFR by year-end.
It is a relatively quiet start to both the domestic and global data weak. The domestic focus this week will be tomorrow’s Q1 Survey of Business Opinion. For rates markets the survey’s inflation indicators will be more important than the top-line measure of business conf.
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