The weak NZ CPI helped drive NZ rates lower, although there was more action at the shorter end of the curve.
The 2-yr swap rate fell from 2.25% to as low as 2.205% before closing at 2.23% down only 2 bps for the day.
The 10-year swap rate ended the day down just 1 bp at 3.34%.
OIS pricing shows the first hike pushed out to August 2018.
The partial intra-day reversal of the decline in rates reflected the upward pressure on Australian rates following the RBA minutes. The Australian 2-year swap rate ended the day up 4 bps to 1.965% as traders brought forward expectations for RBA hikes. The first RBA rate hike is now fully priced by October 2018 and the possibility of any near-term easing is now priced out of the curve.
On global rates, the death of the US healthcare bill and reduced expectations of any fiscal stimulus drove US rates lower. There has been a clear flattening bias, with the 10-year Treasury rate down 5 bps to 2.26% and the 2-year rate down by less than 1 bp to 1.35%. Soft UK inflation data saw the UK 10-year rate down 6.5 bps to 1.20%. These forces have helped drive Germany’s 10-year rate down 3 bps to 0.55%.
After an action-packed day, the day ahead looks a lot quieter. There will be increased interest in the RBA’s Heath’s speech later today and, coming from the Economics Department, she might shed more light on the RBA’s thinking around the neutral policy rate. US housing market data tonight shouldn’t be market moving and there’ll be more interest in any US political developments.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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