by Kymberly Martin
It was a relatively quiet day in NZ markets on Friday. Overnight, US 10-year yields fell on weak US payrolls.
On Friday, NZ swap markets largely consolidated after their large moves earlier in the week. Overall, 2-year swap yields closed down 17bps on the week, at 2.58%. This is now slightly below the lows of November last year.
The market prices the OCR to be 25bps lower in 12 month’s time. Our central view remains that the RBNZ is unlikely to cut rates, but rather push back the starting point of intended rate hikes, if necessary. 10-year swap yields closed down 9bps on the week, resulting in a steepening of the 2s-10s curve to 145bps.
There was also little action in bond markets on Friday. On the week, yields on NZGB23s had declined 17bps, to 3.80%. This is just above their lows in December last year.
On Friday night, “safe haven” US and German long bonds absorbed the final reading of the Composite PMI at 46.7 (47.4 expected).
However, demand for these bonds increased after the release of disappointing US non-farm payrolls numbers for April (115k vs. 160k expected). US and German 10-year yields dropped to 1.88% and 1.58% respectively.
Key NZ developments to watch this week will be the RBNZ’s 6-monthly Financial Stability Report on Wednesday. This could impact market thinking regarding the OCR outlook.
Tomorrow, Crown Accounts will be released and likely highlight the difficulty in achieving the Government’s goal of an operating surplus by 2014-15. This has implications for debt issuance going forward. Thursday’s BNZ PMI will also be important. Globally, the Bank of England announces rates on Thursday.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.