By Kymberly Martin
It was a quiet day in NZ markets following the holiday closure of markets offshore.
NZ swaps closed up 1-2bps across the curve. NZ bonds closed little changed. The domestic highlight yesterday was the release of REINZ housing data.
The data showed sales slowed to an annual 2.1%, from 18.1%. But most of this reflects base issues from last year. Overall, sales levels remain consistent with annual house price inflation in the high single figures.
It was no great surprise, then, to see the REINZ Stratified Home Price Index sustaining a 9.9% annual pace in October. Still, the relatively firm sales numbers, and house price inflation, for October is more than likely propped up by a rush to buy before mortgage pre-approvals expire.
Over the coming months we’d be surprised if sales keep holding up and if house price inflation doesn’t slow markedly. But this won’t materially dent the broader economic upswing that’s now well underway, and gaining force.
Higher interest rates will still be required sooner rather than later. We see the OCR being hiked from mid next year and ‘normalised’, to 4.50% by 2H 2015.
On reopening after Monday’s holiday, the US bond market tracked relatively tight ranges. Benchmark 10-year bond yields traded between 2.75% and 2.79%, sitting at 2.77% this morning.
Today, the domestic focus will be the RBNZ’s Financial Stability Review. This is the appropriate document for the RBNZ to discuss recent LVR restrictions. Weekly mortgage approvals data will also be released.
Tonight, UK employment data and the Bank of England’s Inflation Report will be released.
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