By Kymberly Martin
It was a fairly quiet end to the week in NZ markets. Swap yields closed down 1-2bps, with 2-year at the familiar 2.88% level. The 2-10s swap curve sits at 105bps.
Heading into this Wednesday’s crucial CPI data, the market prices around a 50% chance of a OCR hike by March next year.
Following Friday’s low-side food price index we now expect a 0.9%y/y outcome for Q1 CPI. This should confirm the CPI trend is bottoming with 0.8% and 0.9% respectively in Q3 and Q4 last year.
However, the still low reading shows tradables inflation continues to be suppressed by the high NZD.
Our forecast outcome is exactly in line with the RBNZ’s in its March MPS so should not in itself elicit any policy response.
On Friday evening, ‘safe haven’ US and German bonds were in demand after lacklustre data outcome.
US 10-year bond yields slipped from 1.79%- 1.72%. German 10-year bond yields (1.26%) are heading back toward all-time lows.
Given these offshore moves, and moves in Aussie Futures expect NZ long yields to open down this morning.
We believe overall downside to NZ bond yields is limited however, given the recent sharp rally in NZ bonds, and already compressed NZ-US and NZ-AU bond spreads.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.