by Kymberly Martin
There was little going on in NZ markets on Friday. NZ swap yields closed down 1-2bps and bond yields were unchanged. 2-year swaps closed at 2.90%. The market is pricing just 9bps or RBNZ rate hikes in the year ahead.
We continue to expect a first RBNZ rate hike in December. This Thursday’s RBNZ meeting will therefore be crucial to see if the Governor’s words remain consistent with this view. It was their central view in the March Monetary Policy Statement.
We’ll also be looking out for what the RBNZ has to say on inflation (post the Q1 CPI) and the exchange rate (given the air-time it got at the last meeting, and implication the RBNZ would delay policy tightening if the currency continued to appreciate).
On Friday night US and German “safe haven” bond yields showed some volatility but returned to trade at familiar levels of 1.96% and 1.71% respectively. Peripheral European spreads were contained.
At the G20 summit over the weekend, the IMF managed to secure $430b of further funding as a firewall against the European debt crisis. This should take the total firepower to over €800b but still falls short of some expectations.
This week, Italy will return to the market to sell bonds along with Spain and France auctioning bills.
On Wednesday the US FOMC will announce its target rate, and the Bank of Japan will do the same on Friday. Neither is expected to change rates, though the market will look for hints of further quantitative easing from both.
There is plenty to make a fairly volatile week ahead, with the key for the NZ short-end being Thursday’s RBNZ meeting.
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