By Kymberly Martin
NZ yields closed up 2 to 5bps across the curve. Overnight, US benchmark 10-year bond yields consolidated between 2.70% and 2.74%.
NZ 2-year swap close at 3.57%, close to its highs for the year reached in mid-September. NZ 10-year bond yields also closed close to their highs for the year at 4.79%. The moves followed the push higher in AU yields. AU 10-year bonds are pushing towards their highs on yield for the year, just above 4.20%.
The market now prices only a 30% chance of a further rate cut from the RBA.
Yesterday’s October RBA Minutes showed the central bank on hold for now, given the recent bounce in AU confidence and house prices. But the Bank has not closed off the option to cut again, given the weak growth and employment outlook.
Key is whether the bounce in confidence leads to higher investment spending, and whether recent AUD appreciation continues. Our NAB colleagues view is that investment spending will decline next year, and unemployment will rise above 6%. A further rate cut will be required in early 2014.
Overnight, the US bond market re-opened after the Columbus Day holiday. Despite a disappointing US Empire Manufacturing survey (1.52 vs. 7.00 expected) US 10-year yields traded a fairly tight path between 2.70% and 2.74%. They sit around 2.72% this morning as the market awaits progress in US fiscal negotiations.
US negotiations will be a continued focus today as the clock keeps ticking. US NABH housing market data and the US Fed’s Beige book will also be released. These will be important for the temporarily, side-lined debate around the start point for QE ‘tapering’.
Domestically, the focus will be on the release of Q3 CPI.
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