By Kymberly Martin
It was a quiet day across the board in NZ rates markets yesterday. Yields closed up 2bps across the swap and bond curves.
Swaps remain close to the top of recent ranges with 2-year and 5-year at 3.37% and 4.17% respectively. The 2-10s swap curve remains at 131bps.
The market showed very little response to yesterday’s labour market data. While the unemployment rate ticked up to 6.4% from 6.2% previously, the underlying details were broadly robust. We continue to see a broadly improving trend.
Overnight, US 10-year yields drifted lower from 2.64% to 2.59%.There was no great insights from Fed speaker Pianalto, who reiterated she would support QE ‘tapering’ as long as the labour market continues to recover. With the US unemployment rate at 7.4% and inflation at 1.3%y/y “we still have a way to go”.
After the Bank of England’s release of it inflation report UK 10-year bond yields initially rose more than 10bps to 2.54%, before settling around 2.48%. The response may reflect the markets expectation that very loose policy will stimulate the nascent UK recover more than previously expected. It may also reflect market scepticism that inflation outcomes will allow the BoE to maintain its target rate at 0.50% for such an extended period.
Domestically, it will likely be another quiet day of consolidation. Across the Tasman the AU employment report will be crucial in stream-lining market expectations for RBA activity. After this week’s 25bps cut the market now prices a further 30bps of cuts in the year ahead. This is consistent with our own view. Today, the Bank of Japan will also announce its target rate.
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