By Kymberly Martin
It was a relatively quiet day in NZ markets as yields consolidate off their lows.
NZ 2-year swap yields closed up 2bps to be 13bps off their lows. Some real money interest in fixing at these historic lows is helping yields find support.
Still, the market continues to price the OCR will be around 30-bps lower in a year’s time. It also prices 40% chance of a rate cut at the June 14 meeting.
It may take until the meeting itself for these expectations to be reversed. We do not expect cuts.
NZ bond yields closed down 1bps across the curve in quiet trading. At 3.59% NZGB23 yields are now hovering 9bps above their lows. The NZ-US 10-year bond yield spread has widened to 186bps and likely has further to widen in our view.
Market sentiment remained somewhat precarious overnight, despite equity markets managing to eke out modest gains. ‘Safe haven’ US and German bonds remained in demand with 10-year yields falling to 1.72% and 1.35% respectively.
This marks a new low on German bond yields, as markets continue to spurn the European periphery, in favour of the relative safety of Germany.
Today, NZ yields will continue to attempt to consolidate, off their lows. NZ building permits data will be released but is unlikely to be a big market mover. Elsewhere, AU retail sales will give an insight into the state of the beleaguered AU consumer.
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