By Kymberly Martin
Swap and bond yields closed little changed yesterday. The market prices around a 50% chance of an OCR hike by year-end.
We expect a first 25bps hike in December. Still there is a lot of water to go under the bridge before then.
In the near-term we suspect yields may be set for some consolidation/pullback after their steady rise since December.
After the recent sell-off in NZ bonds, valuations relative to swap and AU equivalents have improved significantly. Still spreads are not at levels yet, that we would be outright buyers.
Offshore, it was a quiet night with little on the global data front. US 10-year bond yields once again failed in an attempt to move higher, this time pulling back from 1.98% to sit at 1.95% this morning.
Across the Tasman today, the NAB business confidence survey is released followed by the Westpac consumer confidence survey tomorrow.
In recent days the market has increased expectations of RBA cuts to 50bps in the year ahead, with a 60% chance of a cut in March.
As a result of diverging policy rate expectations on either side of the Tasman, NZ-AU 2-year swap yields have inched into positive territory for the first time since April 2009. We target around 60bps by year-end.
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