By Kymberly Martin
NZ swap yields consolidated further around mid-range yesterday. NZ 2-year swap yields continue to sit around 2.72%. The market looks for the NZ OCR to be little changed in a year’s time.
By that time we expect that the RBNZ will have begun its very gradual process of ‘normalising’ rates through rate hikes.
NZ bonds also had a quiet day. NZ-US and NZ-AU 10-year spreads now sit at 203bps and 47bps respectively. If NZ-AU spreads widen above 50bps we would look to reposition for spread narrowing. Buying NZ bonds relative to AU equivalents also has offers positive ‘carry’.
It was a fairly subdued night in markets in the lead up to the Jackson Hole meeting at the end of the week. There is some speculation that Bernanke may disappoint expectations for him to signal new stimulus at the meeting.
There are suggestions he will not want to turn the Jackson Hole gathering into a policy-signalling event, when that should b reserved for FOMC meetings.
German ‘safe haven’ bonds showed little reaction to the release of German IFO business survey data. This showed the current assessment slightly higher than expectation, but the forward looking ‘expectations’ component a little disappointing. German 10-year yields traded sideways at the 1.35% level.
US equivalents are finding support one again at the 1.64%, as the market awaits Friday’s meeting. It should be another relatively muted day in markets ahead with few major data releases scheduled.
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