By Kymberly Martin
Swap yields closed up 1-4bps on Friday. The 2s-10s curve was a little steeper at 100bps. 2-year swap finished the week at 2.85%, in the middle of the very tight 2.80-2.90% range it has traded for the past month.
The market prices a 30% chance of an OCR hike from the RBNZ in the year ahead. For short-end yields to break below their recent range the market would need to begin pricing rate cuts. This is unlikely given the solidity of the recent RBNZ statement.
Conversely, the next move higher in yield will require the market to move toward pricing our view of a first RBNZ rate hike in March next year.
There is no immediate catalyst on the horizon. However, this week’s data will likely send a familiar message of a domestic economy where momentum is building.
Tomorrow’s ANZ business survey will likely again be upbeat, consistent with 3-4% GDP growth. Credit aggregates data will likely show borrowing continues to pick up.
Last Friday’s DMO bond tender attracted a strong 4.4x bid-to-cover ratio. However, some bids were well away from market and successful bids were 2bps above mid-price at the time.
NZ bond yields closed up 3-4bps on the day. As yields still languish near all-time lows we think demand will weaken, although near-term supply limitations (next tender of nominal bonds in 3 weeks) remains an issue.
Friday night was dominated by the release of US Q1 GDP. It provided the catalyst for US 10-year yields to break below the critical 1.68% level. They ended the week at 1.66%, their lowest close this year.
US home sales data will be released tonight. However, the more crucial data for US long yields (and by extension the long-end of the NZ curve), will be this Friday’s non-farm payrolls.
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1 Comments
Friday night was dominated by the release of US Q1 GDP. It provided the catalyst for US 10-year yields to break below the critical 1.68% level. They ended the week at 1.66%, their lowest close this year.
Could some one point this out to Roger Kerr before he regales his LA client's and the readers here with detailed analysis explaining how it cannot be.
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