Fixed Interest Markets by Kymberly Martin
It was another relatively quiet day in NZ markets, with yields dribbling a little lower. Overnight, offshore markets were without drama as markets await the EU summit.
NZ swap yields declined another 4-5bps yesterday. It looked like some position squaring ahead of the RBNZ meeting today. Liquidity continues to be scarce, although there appeared to be two-way interest for 2-year swap at just above 2.80%. It closed at this level, with the market pricing the Official Cash Rate to be flat over the coming 12 months.
Bond yields inched lower by 4bps. The yield on NZGB 21s has slipped below 4.00% again, to close at 3.99%. The NZ-AU 10-year bond spread sits around 6bps.
In Australia, the market response to the backward-looking Q3 GDP data was rather muted. AU 3-year swap yields closed up 3bps. The market continues to price around 110bps of cuts from the RBA in the year ahead.
Today’s AU employment report, for Nov, will be important in influencing these expectations. The unemployment rate is expected to remain unchanged at 5.2%.
Overnight, despite the usual flurry of European headlines, markets were relatively lackluster as they anxiously await the ECB rate decision today, and the EU summit that kicks off on Friday. The ECB is expected to cut rates by a further 25bps today. The Bank of England also announces rates.
The RBNZ announces its rate decision at 9.00am today. It is widely expected to remain on hold at 2.50%. We anticipate its statement will highlight global risks, and likely push out its implied rate hiking cycle. However, we expect it to restate its medium-term tightening bias. If this is omitted and the reference to rate increases at some point is removed, we would likely see a near-term fall in yields as markets move to re-price rate cuts.
See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.