by Kymberly Martin
NZ markets were relatively quiet yesterday, as yields try to find a level after their heavy fall in recent weeks.
The yield on 2-year swaps closed up 4bps at 2.52%. The market still prices more than 30bps of rate cuts by the end of the year.
Yesterday’s RBNZ Financial Stability Report, reiterated NZ exposures but also highlights its increased ability to cope with negative shocks. The RBNZ made no hints toward OCR rate cuts any time soon.
We do not expect rate cuts, though we are assessing the case for a later start to the rate hiking cycle from the December we currently have penned in.
The yield on 10-year swaps slipped a further 2bps to 3.90%. The 2s-10s curve has therefore flattened back to 138bps.
Bond yields closed up 1-4bps in quiet trading. The DMO announced their auction today at 100ms of 19s and 23s.
Overnight, “safe haven” German 10-year bond yields plumbed new depths, trading as lows as 1.50%, before returning to trade at 1.52%. US equivalents dipped intra-night before returning to trade at 1.84%.
Spreads between Spanish and German 10-year bond yields have spiked toward their highs of late last year at 456bps. The market remains focused on the lack of resolution following the Greek elections. Elections may need to be held as early as next month. The prospect of Greece leaving the Eurozone is also now being openly discussed by European officials.
Today, the Business NZ PMI will be released. It will do well to hold onto the 54.5 level achieved last month. However, a reading above 50 would still put the NZ manufacturing sector in expansion territory. This contrasts to a number of its developed market peers.
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