By Kymberly Martin
Following offshore moves, NZ yields pushed higher and the curve steepened. The US market was closed overnight for Veteran’s Day.
NZ yields gapped higher after Friday’s payroll inspired moves offshore. 2-year swap closed up 5bps at 3.55% and 5-year closed up 7bps at 4.46%. The 2-10s swap curve has steepened to 150bps.
2-year swap is now back toward its mid-October highs, as the market prices around 105bps of OCR hikes by the end of next year.
The year ahead will likely be typified by the sort of short-term dips seen in recent weeks, within a gradual trend higher in short-end yields. We see 2-year swap at 4.60% at the end of 2014.
NZ bond yields also moved higher yesterday by 5-6bps across the curve. The spreads between swaps and bonds widened slightly. NZ 10-year bond yields now sit at 4.74%, mid the 4.50%-5.00% range we see holding in the year ahead.
Consistent with this range, we continue to see US 10-year bond yields in a 2.50%-3.00% range.
Announcement of QE ‘tapering’ should not cause a break of the top of this range, as this eventuality has now largely been priced by markets. This is particularly the case if the Fed goes to lengths to disentangle ‘tapering’ from ‘tightening’, indicating the latter is still a long way off.
With the US bond market closed and little trans-Atlantic data of note, it was fairly quiet in rates markets overnight. Today, the domestic focus will be the release of REINZ housing data.
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