By Kymberly Martin
It was a quiet day of consolidation in NZ swap markets on Friday. Swap yields ended the week 6-8bps lower across the curve.
The market continues to price the OCR to be little changed in a year’s time. We see 2-year swaps (at 2.72%) sitting around the middle of a current 2.55% to 2.90% trading range.
The 2s-10s curve sits a fraction flatter at 116bps. We are neutral on curve shape for now.
Bond yields closed down 2-4bps on Friday. The bond curve flattened notably last week. NZGB13s remained little changed as they approach next April’s maturity.
However, NZGB23s yields fell 11bps over the week, helped by some improvement in demand at the DMO tender.
The current level of NZ-US and NZ-AU 10-year bond spreads at 200bps and 44bps respectively should help support demand for long-end NZ bonds.
On Friday night, US durable goods data appeared strong at the headline level but weak ex-transportation. Still the data proved sufficient to curtail the earlier rally in US Treasury bonds. 10-year yields that had dipped as low as 1.63% climbed to close near to 1.69%.
This week will see much speculation about comments likely to come from the Jackson Hole gathering starting Friday.
The key domestic data release this week will be Thursday’s NBNZ business confidence survey. An ‘own activity’ reading close to last month’s, at +24, would imply our forecast of GDP growth inching up to a trend pace is on track.
A marked slip in this indicator would likely see the market ratchet up expectations for RBNZ rate cuts in the year ahead. Still, we expect NZ swap yields to remain within their current ranges this week.
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