By Kymberly Martin
NZ swaps and bonds ended the week on a quiet note on Friday. Yields were little changed. US 10-year yields failed to push higher.
The market now prices around a 45% chance of a 25bps rate hike from the RBNZ in the year ahead. We continue to expect a 25bps hike in December.
NZ 2-year yields remain at the top of their range of the past 8 months. A break higher from these levels would be significant, likely knocking a level of complacency that has become entrenched in NZ fixed interest markets.
Still, near-term we see a pull-back in yield as more likely. There are no tier one data releases until Friday’s retail sales data. Offshore markets are also showing a current reluctance to break higher in yield.
On Friday night, US 10-year yields rose as high as 1.99% after the release of less-weak-than-expected US trade data (-$US38.5b). Subsequently yields slipped back to 1.95%.
This week the market will keep its eye on NZ housing data, particularly REINZ releases. These have taken on greater significant since the RBNZ’s recent statement that “house price inflation has increased and we are watching this and household credit growth closely”.
We suspect the January data will not look as strong as recent reading, as has already been indicated by the Auckland-focused Barfoot housing data.
Friday’s retail trade data has the greatest potential for an upside surprise, and hence a boost to yields. We pick a solid bounce of 1.5%, but risks are tilted toward an even bigger gain.
Today, look out for NZ QV house price data. There is little scheduled on the global data front.
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