By Kymberly Martin
NZ swaps and bond yields closed up 5-9bps on Friday. The push higher in swaps occurred against unchanged markets offshore.
This highlights the fact that there remains significant potential pay-side demand from the NZ ‘real economy’, most recently seen from the mortgage sector.
The 2-10s and 5-10s swap curve closed steeper at 135bps and 54bps respectively.
Market pricing is now consistent with around 170bps of RBNZ rate hikes in the coming two years. This falls only slightly short of our expectations of 200bps over the period.
On Friday night, in relatively calm, data-light markets, US 10-year yields drifted a little lower, to close the week at 2.58%. Yields remain in the middle of their 2.40-2.75% range established over the past two months.
Meanwhile, in relative calm in the Eurozone in recent weeks, peripheral spreads to German bonds have crept down to their lows since 2H 2011. Italian-German and Spanish-German 10-year spreads sit around 258bps and 281bps respectively.
It will be a relatively quiet start to the week, with only NZ food prices scheduled domestically. Japanese Q2 GDP will be the highlight offshore today.
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