By Kymberly Martin
Following offshore moves, NZ yields closed down 1-3bps across both swap and bond curves yesterday.
Short-end swaps remain within recent ranges. The 2-10s swap curve remains at 112bps. The market prices slightly more than one 25bps rate hike from the RBNZ by this time next year. This would take the OCR to at least 2.75%.
By contrast, the market sees at least a further 40bps of rate cuts from the RBA by a year’s time. If delivered, this would see the RBA’s cash rate below the RBNZ’s at 2.25-2.50%.
Recent moves in cross-Tasman swap spreads reflect this view. NZ-AU 2-year swap spreads are now at more than four year highs, at 30bps.
It was a jittery night for markets. The ECB and Bank of England did little to surprise markets and US data was thin on the ground.
However, the market appears to be nervously pre-positioning for a disappointing US payrolls number tomorrow night. US 10-year bond yields declined sharply early this morning, at one point falling below 2.0%. They now sit around 2.07%.
In Europe, peripheral spreads to German 10-year bonds widened 20-25bps, and corporate credit spreads widened.
Aussie bond futures moved sharply higher in the early hours of this morning, mimicking the moves seen in US bonds. We would expect NZ bonds to open up (yields down).
Domestically, today’s wholesale trade figures are unlikely be market movers. All eyes will be on US payroll data tonight to determine how offshore yields end the week.
With expectations for some disappointment likely now in the price, delivery even close to expectations should see yields bounce. However, there is still plenty of room for US bonds yields to fall on a significantly weak outcome.
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