By Kymberly Martin
NZ fixed interest markets remain very quiet in holiday trading with domestic data light on the ground. NZ swap yields closed virtually unchanged.
The market continues to price around a 20% chance of an RBNZ cut by mid next year. We do not expect cuts.
In thin trading the NZ bond mid-curve closed down 2-3bps on yield. In the past week, or so, as US and AU bonds have sold off, NZ bonds have outperformed.
This has taken spreads to the bottom of ranges, suggesting potential for NZ bonds to underperform near term. However, it is another couple of weeks until weekly DMO tenders resume. Supply dynamics are therefore relatively tight, helping to keep a cap on the rise in NZ bond yields.
Overnight, US 10-year bond yields have once again flirted with breaking higher only to be knocked back below the critical 1.90% level. It will likely take a significant data surprise, or credible hawkish Fed rhetoric to compliment recent Fed minutes, to break convincingly above this level. This week, US data is mostly of second tier significance.
Significantly, the US S&P500 earnings reporting season for Q4 2012 also gets underway in earnest this week, starting with aluminium company Alcoa. Today, expect another fairly quiet day in NZ markets.
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