By Kymberly Martin
NZ swap yields pushed a little higher on Friday, with a notable steepening to the curve. The market now prices just over a 30% chance of a 25bps cut from the RBNZ by mid next year.
2-year swap yields closed up 7bps on the week, at 2.78%, moving toward the upper end of their 2.50-2.90% trading range. 10-year swaps closed up 10bps, taking the 2s-10s curve to 107bps.
On Friday, data provided little to surprise markets, though politics continued to simmer in the background. US 10-year bond yields closed 10bps higher on the week, at 1.70%.
This puts yields close to the middle of the 1.55-1.90% range that has contained them for the past 5 months. We think this range is unlikely to be broken by year end.
In the week ahead, some attention should return to domestic matters. Ahead of NZ GDP figures, Tuesday’s ANZ business survey is also expected to hold up around current levels.
If we are correct on both of these outcomes, short-end yields should be well supported at current levels.
Tuesday’s Half-Yearly Economic and Fiscal Update will be important in providing an update of the government’s goal to return to operating surplus by 2014/2015.
Importantly, it should provide more detail to the market on likely bond issuance in the year ahead. We expect little in the report likely to upset rating agencies’ view of the sovereign rating.
In the year ahead, it is the deteriorating NZ current account that is likely to give agencies food for thought.
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