NZ swap and bond yields closed up around 1 bps across the curve yesterday.
Overnight, US 10-year yields traded between 2.21% and 2.24%.
The ANZ business survey recovered further in November, although flattered by seasonality. It aligns with our outlook for solid GDP growth ahead.
However, perhaps more worrying for the RBNZ, the survey’s inflation gauges dribbled off this month, if marginally. General inflation expectations moderated to 1.64%, from 1.70%, while pricing intentions, overall, eased to +22.2, from +23.4.
Despite this, NZ yields closed fractionally higher on the day.
The market currently prices a 2.38% trough in the OCR by mid next year, including a 50% chance of a cut on 10 December. A 25 bps cut at this meeting remains our core view, taking the OCR to a cyclical trough of 2.50% throughout 2016.
In the NZ credit market, spreads continue to push a bit wider, following trends offshore. The moves have been assisted by recent new issue offerings that have helped establish where bonds actually trade. Spark Finance is pricing its 2023 bond this week. The indicative range of +110-115 bps over swap, could see spreads for this name marked wider across the curve, by up to 10 bps.
Overnight, US 10-year yields initially pushed a little higher, but failed to push on above 2.24%. Their drift back down to 2.21% this morning was assisted by a disappointing Chicago PMI release, which showed activity fell back into contraction in November. However, the market still prices around a 75% chance of a Fed hike at the 16 December meeting. A hike at this meeting remains our core view.
Today, the local focus will be the RBA’s meeting. However, this promises to be a bit of a non-event as the market prices less than a 5% chance of a cut. That said, the Statement will be dissected with a fine-tooth comb, particularly looking for reference to the recent strong AU employment report and disappointing capex data.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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