By Kymberly Martin
NZ swaps pushed on higher yesterday closing up 2-8bps. Overnight, risk sentiment was dented and US 10-year yields pulled back to 1.97%.
Yesterday, the most notable move in NZ swap markets was curve steepening. Long-end yields rose in sympathy with a break higher in AU long bond yields.
The NZ 2s-10s curve steepened to 112bps, the upper end of its 95-120bps range we anticipate holding for much of H1.
NZ 2-year swaps rose 4bps to 2.96%, their highest close since mid-April last year. The market now prices a 60% chance of an OCR hike by year end. We expect a first 25bps hike in December.
Today’s NZ LCI/QES wage report will likely be scanned to try and glean indicators for Thursday’s more important HLFS employment data.
However, given the more sober mood overnight, NZ markets will likely take a breather from recent optimism today.
Overnight, peripheral European bonds sold-off as European politics returned to focus. Spanish-German 10-year bond spreads widened 30bps to 382bps. In the past week Italian-German 10-year spreads have widened nearly 40bps.
Dampened sentiment was also the key driver of US bonds. US 10-year yields slid from highs close to 2.06% down to around 1.97% this morning.
The local focus today will be the RBA meeting. After some recent stronger domestic data the market prices less than a 20% chance of a cut.
Tonight, European headlines will likely be the key to watch ahead of the ECB meeting on Thursday.
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