By Kymberly Martin
NZ yields closed down 5-6bps across swap and bond curves on Friday ahead of the NZ Labour Day holiday. In fairly quiet trading offshore on Monday, US benchmark 10-year yields consolidated further, above 2.50%.
NZ 2-year swap yields closed the week at 3.41% to be down more than 20bps since their early September highs.
10-year swap, at 4.82%, is down more than 30bps since its recent highs. The 2-10s curve continues to bottom out just above 140bps, for now. Ultimately we expect this curve to flatten toward 60bps next year as short-end rates rise faster than the long-end.
This week’s domestic agenda is fairly bare aside from Thursday’s RBNZ meeting, ANZ business survey and credit aggregates. Heading into Thursday’s meeting the market is pricing just over a 50% chance of a first 25bps OCR by March next year, and around 85ps of hikes in the coming 12 months.
We expect the OCR Review to affirm the tightening tenor of the September meeting. The recent turn-up in CPI may also gain a nod. Elsewhere, economic indicators are at least as strong as at the previous meeting and it’s too early to judge the impact of recently implemented LVR restrictions on banks.
As for the NZD TWI, despite its run-up during the intervening period, it now sits at a similar level as it did at the last RBNZ meeting i.e. just above 76.00. While this is clearly still higher than the RBNZ would prefer it is unlikely to garner any great fury.
This Wednesday’s US FOMC meeting is expected to be a bit of a non-event. The latest soft payrolls report suggests any decision to begin ‘tapering’ QE is likely now an early 2014 story, at the earliest. Meanwhile, US 10-year Treasury yields have continued to virtually flat-line around 2.50% over the past few days. Our medium term view of yields being in a 2.50%-3.00% range remains intact.
For today, there are no domestic data releases. Tonight US retails sales, Conference Board survey of consumer confidence, PPI and business inventories will be released.
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