By Kymberly Martin
NZ swap and bond yields closed up 6-7bps yesterday. Overnight, US 10-year yields slipped a fraction to 2.64%.
NZ yields opened up yesterday morning, following the move seen offshore. Yields then continued higher after the strong employment report yesterday morning. By the end of the day, swap yields were up 7bps across the curve. NZ 2 and 5-year swaps closed at 3.53% and 4.40% respectively.
The market now prices 30bps of RBNZ hikes by April next year and almost 100bps by the end of next year. Our central view sees a first hike in June next year (premised on continued NZD strength) but 125bps of hikes by the end of next year. i.e. we see a later starting point but more rapid ascent than the market is currently pricing.
As anticipated, yesterday’s LGFA (Local Government Funding Agency) bond tender attracted better demand than at recent events. Bid-to-cover ratios for the four maturities ranged from 4.1x to 9.8x. Ranges of successful bids were tight without the ‘tails’ seen in previous events.
Overnight, US benchmark US 10-year yields were relatively directionless. Trading between 2.63% and 2.67% they sit at the lower end of this range at present.US data releases were of relative 2nd tier importance overnight, though a weak MBA mortgage number was apparent (-7.0% to Nov 1). ‘Fed-speak’ overnight also supported lower yields.
Today, there is not too much on the domestic agenda ahead of the release of NZ crown accounts tomorrow. Across the Tasman all eyes will be on the AU employment report. Tonight, it’s all about Central Banks with the Bank of England and ECB meeting. US Q3 GDP will also be released.
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