By Kymberly Martin
NZ swap yields inched a little higher yesterday. Overnight, an optimistic tone continued to prevail globally.
NZ swap yields closed up 2-3bps across the curve yesterday. 2-year swap yields continue to sit right on resistance at 2.87%. The market now prices the NZ OCR will be around 5bps higher in a year’s time. We expect the OCR to be 50bps higher.
A break above the resistance level would open the way for a rise back toward the 3.20% level. Still, given current global optimism it would not take too much to dampen spirits, sending NZ yields lower again (our risk appetite index (scale 0-100%) is close to 70%).
Locally, we look toward tomorrow’s NZ employment report as having the greatest potential to push yields higher. We expect a 0.4% advance in employment to take the unemployment rate down to 6.4%.
Yesterday, the RBA kept rates unchanged as expected, delivering a very neutral statement. Consequently, markets have revised expectations for future RBA cuts.
AU swap yields have surged higher in recent days. NZ-AU 3-year swap spreads have become more negative, moving from -44bps to -67bps.
Overnight, the market’s recent more buoyant mood managed to hold. Alongside rising equity markets, German ‘safe-haven’ bonds continued to sell off. 10-year yields rose from 1.40% to 1.48%.
US equivalents rose from 1.56% to 1.63%, back into their June range. NZ-US 10-year bonds spreads now sit around 196bps and we expect some further narrowing may follow.
Tonight, the key focus will be the release of the Bank of England quarterly report that may suggest further BoE action ahead. Today, expect NZ yields to consolidate recent gains, ahead of tomorrow’s NZ employment report.
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