NZ swaps closed down 2-5 bps yesterday.
Overnight, US 10-year yields traded from 2.14% to 2.22%.
NZ long-end swaps moved lower yesterday in sympathy with Friday’s offshore moves. This saw 10-year swap close down 6 bps, at 3.93%.
The moves at the short-end were more limited. Still, they were likely assisted by the weekend’s pre-Budget announcement that the Government will firm up existing tax measures for property “traders”, both resident and non-resident. This comes hot on the heels of the RBNZ’s announcement, in its FSR, of measures to specifically target Auckland housing “investors”.
The market continues to see such measures as freeing up the RBNZ to imminently cut the OCR, in order to address low CPI inflation.
We remain sceptical of this interpretation.
While rate cuts within the year ahead remain a possibility we believe market pricing near-term is too aggressive. i.e. 50% chance of a cut on June 11 and fully pricing a 25 bps cut by the July meeting. NZ 2-year swap ended the day at 3.36%.
We see a range of 3.30-3.60% in coming months. This assumes the RBNZ does not deliver imminent cuts but the market continues to price this eventuality. The 2-10s curve closed a little flatter, at 57bps.
US yields pushed higher overnight, with some steepening of the curve. US 10-year traded up from early evening lows around 2.14% to sit at 2.22%.
Once again a fairly wide intra-night range prevails.
Meanwhile German equivalents traded sideways around 0.65%, as Greek yields surged higher. The EU Economic commissioner said time remaining for Greece to make a deal was “very limited”. Some upward pressure was also seen on the likes of Italian-German spreads.
The focus for the NZ short-end today will be the release of the RBNZ’s survey of inflation expectations and the RBA’s May Minutes. The survey is important for the RBNZ as it assesses if expectations are “settling” at a low level, inconsistent with its 2% medium-term inflation mandate. Signs that 2-year-ahead inflation have fallen further from the 1Q reading of 1.8% will not be welcome.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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