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Sleepiness is over; action packed up-coming week will drive local and offshore rate expectations

Bonds
Sleepiness is over; action packed up-coming week will drive local and offshore rate expectations

By Kymberly Martin

It was a relatively quiet end to the week for the domestic and offshore market. US 10-year yields ended the week at 2.22%.

In the absence of data releases, swap yields on either side of the Tasman pushed a fraction higher.

NZ 2-year swap closed for the week at 2.71%. We expect a 2.50-2.90% range in the months ahead. Even if the RBNZ delivers a rate cut at its 10 December meeting (our central case), we believe the market will remain inclined to, at times, price more cuts.

NZ 10-year swap closed for the week at 2.34%, taking the 2-10s curve to 83 bps. We anticipate in the coming months the curve will be biased to steepen within a 75-125 bps range. Dips toward the lower–end of this range should therefore be considered as hedging opportunities.

NZ bond yields closed down around 1 bps across the curve on Friday, resulting in marginally wider swap-bond spreads. There has been a slight widening in spreads in recent days following a period of consolidation in offshore equivalents and Thursday’s solid NZ DMO auction of NZGBs. We continue to eye a 10-40 bps range on NZ 10-year swap spreads.

On Friday night, it was very quiet in the US Treasury market as Thursday’s Thanksgiving holiday spilled over into the weekend. US 10-year yields traded a 2.20-2.23% range.

In contrast to last week’s sleepiness there is an actioned-packed agenda ahead. The RBA (Tuesday), ECB and Bank of Canada all announce rates and the week finishes with the all-important US payrolls report. This will firm up the market’s expectations as we move toward the 16 December US FOMC meeting. Currently the market prices over a 70% chance of a hike at this meeting. Today, look out for the NZ ANZ business survey as a potential influence on NZ short-end rates.


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

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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