NZ swaps closed up 2-4 bps across the curve yesterday.
Overnight, in relatively calm markets, US 10-year yields traded between 2.31% and 2.38%.
Despite a fall in ANZ business confidence measures yesterday, there was generally paying interest in NZ swaps. NZ 2-year closed up 2 bps, at 3.10%, while 10-year swap closed up 4 bps, at 3.90%.
We see a 3.00-3.20% range on 2-year swap in the near-term.
We suspect that after a July 23 OCR cut from the RBNZ the market may move to price a lower trough on the cash rate. This is currently priced at around 2.78%, within the year ahead.
The long-end of the NZGB curve did not follow the moves in swap. In fact, the yield on NZGB23s closed down a fraction. This resulted in wider swap-bond spreads.
In relatively calm markets overnight, German yields traded sideways, peripheral European spreads traded slightly tighter, as did CDS spreads.
Despite a continued influx of Greek headlines, US 10-year yields drifted higher over the course of the evening, from 2.31%, to trade above 2.37%. Yields later traded back down to earlier levels, potentially assisted by a disappointing Chicago PMI. It showed activity in the region remains in contraction.
Tonight, the US ADP employment report will be released as a precursor to Thursday night’s US payrolls report. The latest GDT dairy auction in the early hours of tomorrow morning also has potential to impact on NZ short-end yields tomorrow morning.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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