By Kymberly Martin
While yields were little changed on Friday, the swap curve ended the week around 13bps steeper. Short-end yields ended down on the week, following the low-side surprise on CPI.
Still 2-year yields closed the week at 2.56%, 6bps above their intra-week lows. The market now prices around 27bps of RBNZ cuts in the year ahead, up from around 35bps immediately after the CPI release.
Our central case remains for no RBNZ cut in the year ahead, though the possibility has increased in recent weeks.
Certainly we do not think a cut at this week’s RBNZ meeting is a serious option, though the market prices close to a 15% chance. In an otherwise light data week locally, Thursday’s meeting will be this week’s focus. As the first under new Governor Wheeler it is bound to attract additional attention.
The NZ 2s-10s swap curve has moved from 95bps to 112bps in recent weeks. It is approaching levels (115bps) we believe steepening momentum may run out of steam.
The impetus for long-end NZ yields to rise has diminished as US long yields are struggling to break Aug/Sept highs just above 1.85%.
However, US and German ‘safe haven’ 10-year yields are still not far off their highs of the past 6 months at 1.79% and 1.62% respectively.
Key influences on the long-end of the US curve this week will be tonight’s Richmond Fed manufacturing survey, Thursday morning’s FOMC meeting and Friday’s 3Q GDP release. Few ripples are expected from the Fed announcement. But the flash GDP release may buoy markets if it shows the expected bounce from 1.3% in Q2 to 1.9% (ann.) in Q3.
The other key data to watch will be tomorrow’s CPI release for Australia. This will be crucial ahead of the Nov 6 RBA meeting.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.