Markets affected by US Columbus Day. Yields only make minor moves. Local REINZ data will inhibit RBNZ. Eyes on China trade data

By Kymberly Martin

NZ swaps closed up 1-2 bps while NZ bond yields closed down 1 bps.

Overnight, the US market was closed but German yields dribbled lower.

It was a fairly quiet start to the week. REINZ housing data confirmed that sales and prices continue to bubble along, not only in Auckland. This is one factor arguing against further aggressive rate cuts from the RBNZ.

Our central case remains the Bank will deliver one more cut by year-end, taking the OCR to a cyclical trough of 2.50%. The market continues to price a trough in the OCR of around 2.45% by mid next year.

Yesterday, NZGB yields closed down 1 bps. After the sharp sell-off in recent days, in anticipation of the imminent syndication of the new NZGB2033, we now see relative value in longer-dated NZGBs. This is apparent relative to both NZ swap and USTs.

Overnight, USTs did not trade as the market was closed for Columbus Day. However, Fed speakers were still out in force. Fed’s Lockhart confirmed the ‘liftoff’ decision was data dependent, but that he still sees Oct as a live meeting. He emphasised that the US is not directly, highly exposed to China. However, he acknowledged Europe may be more exposed which could then hit the US.

By contrast, Fed’s Evans appeared still concerned about low inflation, saying inflation headwinds may not fade before mid-2016. He favours mid-2016 for ‘liftoff’.

In the absence of key data releases, but modestly negative returns from Eurozone equities and further falls in commodity prices, German yields drifted lower. German 10-year yields traded down from 0.62% to 0.58%.

It is a busier day ahead. China trade data will likely set the general mood of risk appetite this afternoon.

Kymberly Martin is on the BNZ Research team. All its research is available here.