2017 lows being tested in NZ, despite some strong local retail data. Global yields edged up along with the oil price

By Doug Steel

Global yields have generally edged higher, as oil prices pushed upwards.

German 10-year Bund yields rose 3 bps while US 10-year Treasuries are currently up 1bp to sit around 2.34%.

A Fed rate hike in June is still widely anticipated, although pricing has eased back slightly to be closer to 70%, according to CME Group calculations, from around 80% a week ago before the softer US CPI data.

The local rates market saw curve flattening yesterday driven by lower long end yields as they took their cues from the previous offshore session. NZ 5-year swap yield closed down 4.5bps to be just under 2.77%, while NZ 10-year swap yield closed down about 5 bps at 3.285%.

The 10-year swap yield is getting closer to testing its year-to-date low around 3.25%.

Meanwhile, the NZ 2-year swap yield declined a relatively smaller 1 bp, to again close at its lowest level for the year at 2.22%.

Yesterday’s strong Q1 retail sales were not enough to halt the aggressive push lower in yields we have seen since last week’s RBNZ adherence to keeping the OCR on hold for a prolonged period. RBNZ’s Assistant Governor McDermott’s speech on forecasting and uncertainty late yesterday afternoon offered nothing extra for the policy outlook, but did note ‘Today, in May 2017, the most likely scenario is for the OCR to remain stable for some time, although uncertainty remains high.’

There doesn’t look to be much on the calendar today to cause much movement. UK CPI and EU GDP look like providing the most interest overnight.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.