By Kymberly Martin
NZ yields followed their offshore counterparts lower yesterday. Swap and bond yields closed down 5-6bps across the curve. The 2-10s swap curve was only fractionally flatter at 140bps.
The market showed little response to the solid Q2 QSBO survey or strong pulse in NZ retail card spending yesterday.
The short-end of the curve already has a lot of domestic good news priced in. Almost 75bps of OCR hikes are expected by this time next year.
Although we continue to see pay-side interest from the ‘real’ economy, we suspect we may see receiving interest returning, in order to benefit from the significant roll and carry on offer (6bps/month for 2-year swap).
Overnight, there were limited data releases or news flow out of the US. US 10-year yields drifted down to sit around 2.62% this morning.
We reiterate our view that US 10-year yields are likely now in a higher range, rather than on a one-way path North. The top of this range may sit as high as 3.00%, but dips toward 2.25% may be seen, depending on data flow.
During the day today the AU Westpac consumer confidence survey will be released. The market will be looking for some relief after yesterday’s very weak NAB business survey.
Our NAB colleagues now look for a next RBA rate cut in August (previously November). The market now assigns more than a 50% chance of a cut at this meeting.
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