By Kymberly Martin
In a relatively quiet day locally, yields followed the path of least resistance, lower. The short-end of the swap curve closed down 2-3bps with 2-year at the familiar 2.70% level.
Longer-end yields fell 5-6bps, following some of the recent decline in US long yields. The 2s-10s curve sits a little flatter at 105bps.
Bond yields also closed down 2-3bps in quiet trading. NZ 10-year bond yield spreads sit relatively mid-range compared to both AU and US equivalents, at 37bps and 188bps respectively.
The fairly uneventful tone continued overnight. ‘Safe haven’ US and German bonds found some favour as European equities declined 0.70%. German 10-year yields dribbled down to 1.55% and US equivalents to 1.72%.
Yesterday, our NAB colleagues adjusted their RBA forecast. They now see the RBA cutting rates again in coming months, probably by a cumulative 50 basis points (previously no change).
In recent weeks the RBA has signalled concern about the mix of the sustained drop in commodities and ongoing high AUD.
Other factors are tightening fiscal policy, ongoing weakness outside of mining (notably in residential housing and small business), and the medium-term headwinds of the approaching end of the investment boom in the resource sector. The forecast now has a 25bps cut in November and in February, although actual timing will be data dependent.
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