By Kymberly Martin
On Friday, yields closed little changed. On the week, NZ swap yields closed up 10-15bps, as the market reduced its expectation of rate cuts in the year ahead.
Still, the market assigns an 85% chance of a cut in the year ahead and a 15% chance of a cut at the next RBNZ meeting on Dec 6.
For now, swap yields remain around the middle of their well-established ranges traded since June. 2 and 10-year swap finished the week at 2.66% and 3.77% respectively.
With the 2s-10s curve now at 111bps, we will be looking for opportunities as we approach 120bps to position for flattening. However, if the recent sharp sell-off in AU and US long bonds were to continue into year end, it would likely to add to steepening pressure on the NZ curve.
On Friday night, ‘safe haven’ German and US bond yields were underpinned by the solid German IFO readings. US 10-year bond yields closed the week at 1.69%, 14bps above their lows of the previous week. Peripheral European spreads to German bonds continued to tighten.
It will likely be a relatively quiet start to the weekend today, with no local data releases.
Tomorrow, the RBNZ’s survey of 2-year-ahead inflation expectations will be released. As of Q3, these expectations were on a declining trend but still uncomfortably high at 2.3%.
The RBNZ will be watching the Q4 outcome with interest along with a new component to the survey on house price expectations.
It is now specifically within the RBNZ’s mandate to target ‘asset prices’, according to the new PTA signed under new Governor Wheeler.
Along with a plethora of data releases on either side of the Atlantic this week, look out for a fair amount of Fed and ECB speak.
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.