By Kymberly Martin
The key theme in NZ markets last week was a sharp steepening of curves.
On Friday, yields pushed another 1-2bps higher. This saw NZ 2-year swap finish the week at 3.52% and 10-year swap at 5.09%. This sees the long-end of the swap curve within spitting distance of its highs for the year.
At the short-end of the NZ curve the market is now pricing in close to 100bps of OCR hikes by this time next year. This falls only slightly short of our own view of 125bps of hikes in the year ahead, after a first 25bps hike in March 2014.
The move in NZ yields appeared to be in sympathy with similar moves across the Tasman, as US rates have remained remarkably stable. Despite (or perhaps because of) the ongoing US fiscal wranglings, US 10-year bond yields have traded a tight range in recent weeks. Yields have traded between 2.60-2.75% for the past three weeks, closing last week at 2.69%.
It will be a quiet start to this week with public holidays in the US, Canada and Japan. Domestically, today’s focus will be the BNZ PSI. We are hopeful this can hold up relatively well (much as the PMI did) for September.
The key local release later in the week will be Wednesday’s Q3 CPI. We, consensus and the RBNZ are all closely aligned in expecting a pickup in annual CPI from 0.7% to 1.2%. This should confirm inflation has bottomed ahead of a gradual rise we expect through next year.
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