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Despite some disappointing US data, UST 10yr yields push higher to 1.75%. NZ inflation expectations and RBA minutes in today's spotlight

Bonds
Despite some disappointing US data, UST 10yr yields push higher to 1.75%. NZ inflation expectations and RBA minutes in today's spotlight

By Kymberly Martin

NZ swap and bond yields closed 1-2 bps lower yesterday.

Overnight, US 10-year yields pushed up from 1.70% toward 1.75%.

In a relatively quiet start to the week, NZ swaps headed lower across the curve. NZ 2-year swap traded down to close at 2.20%.

We continue to expect that 2-year swap can trade down below 2.10% in coming weeks/months as the RBNZ delivers a further rate cut and the market is inclined to price more. Currently the market prices around a 50% chance of an RBNZ rate cut on 9 June and that the OCR will trough at 1.86% within the year ahead.

The NZ 2-10s curve closed at 63 bps. It is approaching the lower-end of its expected 60-110 bps trading range for the year ahead. As always, direction of US 10-year yields will exert an important influence on NZ long-end yields. Overnight US 10-year yields pushed a little higher along with the WTI oil price, despite some disappointing US data releases. Yields now trade at 1.75%.

Today’s release of the RBNZ’s survey of inflation expectations data will be closely watched.  Any further slippage in the 1 and 2-year-ahead measures would likely see the market increase expectations of imminent rate cut(s). Still, we see the risks tilted toward expectations nudging higher from very subdued levels.

The RBA’s Minutes will also be in the spotlight today. Our NAB colleagues expect the Minutes are unlikely to support expectations for a June rate cut or a sub-1.50% cash rate. Currently the market prices around a 25% chance of a June cut and a 1.34% trough in the RBA’s cash rate within the year ahead.

Daily swap rates

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

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