By Kymberly Martin
In a quiet start to the week NZ yields followed offshore counterparts higher. However, overnight, US benchmark 10-year bond yields drifted lower to trade at 2.59%.
Swap yields closed up 4-5bps in sympathy with the weakness in offshore bond markets, spurred by stronger US data at the end of last week.
2 and 5-year swaps closed at 3.46% and 4.33% respectively, still some 15-25bps below their mid-October highs.
The market now prices a first OCR hike from the RBNZ by April next year and 100bps of hikes by the end of 2014. We see a first hike in June next year with 125bps of hikes by the end of the year.
Yesterday, details of the LGFA’s (Local Government Funding Agency’s) sixteenth tender on Wednesday were announced. $115m of bonds will be offered across the four maturities: $35m 04/2015s; $30m of 12/2017s; $25m of 03/2019s and $25m 05/2021s. We expect demand at this tender may be more solid than at recent events that have attracted lacklustre demand.
Overnight, US 10-year bond yields tracked a path lower to 2.59%. The path was established early in the evening, though weaker-than-expected US factory orders, early this morning, did nothing to curtail the move.
Today, it will be all eyes across the Tasman for the RBA meeting. The market is almost unanimous in expecting no move from the central bank today.
Yesterday, stronger than expected AU retail sales data gave AU yields a prod higher. The market now prices only about a 20% chance of a further rate cut from the RBA in the year ahead.
The domestic data agenda is fairly bare today. Tonight, the US non-manufacturing ISM will be released and the Fed’s Lacker is scheduled to speak.
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