After Tuesday’s large moves, NZ swaps were fairly contained yesterday.
2-year swap closed down 1 bps, while longer dates closed fairly flat. Overnight, US 10-year yields traded between 1.73% and 1.77%.
With three weeks until the RBNZ’s November meeting the market prices around an 80% chance the OCR is cut to 1.75% at the meeting. It also prices around a 25% chance the OCR is cut beyond 1.75% next year.
Across the Tasman, the market prices around a 40% chance the RBA will deliver a cut, to 1.25%, within the year ahead. This pricing could well be influenced by the release of the AU employment report today.
Early this morning, US 10-year yields traded up toward 1.77%. They have subsequently drifted back down toward 1.73%. We continue to see yields broadly trading a 1.60% to 1.90% range through to year-end, before pushing a little higher into mid next year.
The market’s expectations for a Fed hike in December have dipped slightly in recent days. The OIS market now prices around 18 bps of hikes.
Today, the NZDMO will hold its latest auction, offering NZD150 mln of NZGB 2025s. This is the first tender of nominal bonds in four weeks. We are expecting this to be supported with solid, if unspectacular, demand.
Tonight the ECB will meet. No change of policy rates is expected. The market may however scan comments for any hint of future QE ‘tapering’ (though it is highly unlikely to be referred to by name). If comments fuel the market’s concerns that easy monetary policy may be reaching its practical limits, then long-end yields could trade higher.
Daily swap rates
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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