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Markets bet on an RBA rate cut. Yields on long rates rise in most majors continuing a recent sell-off in bond markets

Bonds
Markets bet on an RBA rate cut. Yields on long rates rise in most majors continuing a recent sell-off in bond markets

By Kymberly Martin

It was a quiet end to the week in the NZ market with further curve steepening the main theme. On Friday night, US 10-year yields pushed up to 2.11%

NZ 2-year swap ended the week at 3.48%, at the lower end of its range of the past few months.

The market prices around 30 bps of cuts from the RBNZ for the year ahead.

We expect the market will continue to price cuts for some time, even if not delivered (our central view). This should keep 2-year swap within a 3.40-3.70% range in coming months.

Meanwhile NZ 10-year swap has traded up to 3.88%, taking the 2-10s curve to 39 bps.

This is its highest level since mid-Dec, just above the 200-day moving average. We expect the curve to trade above 50 bps in H2. Further steepening is likely today given offshore moves on Friday.

On Friday night, US bonds continued their recent sell-off. The moves appeared driven by momentum rather than specific data catalysts.

US 10-year yields pushed up from 2.05% to end the week at 2.11%, their highest level since early-March. Support for the bonds is eyed as yields approach 2.16%, ahead of the 200-day moving average at 2.19%.

German 10-year yields ended the week at 37 bps, now more than 30 bps above their mid-April lows.

It is a relatively quiet start to the local data agenda this week with the blockbuster events being tomorrow’s RBA meeting and Wed’s NZ Q1 labour market report.

Ahead of the RBA meeting the market prices more than a 75% chance of a cut, and a total of 45 bps of cuts for 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
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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