By Kymberly Martin
NZ swaps pushed a faction higher and bond yields a little lower yesterday. Ahead of the US FOMC meeting, US 10-year yields pushed up to 2.89%
NZ swaps closed up another 1-2bps across the curve yesterday. 2-year sits at 3.78% while 5-year is at 4.66%. Meanwhile NZ bonds managed to eke out a further 2bps rally to add to their notable post-HYEFU gains. The yield on NZ 10-year bonds now sits at 4.70%, almost 15bps below its highs earlier in the week.
Consequently 10-year swap spreads have pushed wider to 48bps, their highest level since mid-June this year.
Fundamentally, we continue to see spreads biased wider within a 25-55bps range in the year ahead. However, the risks are that we see a liquidity driven squeeze above the upper-end of this range at some point in coming months.
Overnight, ahead of the US FOMC meeting, US benchmark 10-year bond yields pushed up from 2.84% to 2.89%. All eyes are now on the meeting, most importantly to see if the Fed announces any tapering of its current asset purchases. These currently stand at $85b/month. Consensus expects no change at this particular meeting.
Today, the domestic focus will be on the release of Q3 GDP.
We anticipate a 1.0% (3.2%y/y) outcome, similar enough to the RBNZ’s expectation of 1.1%. i.e. unlikely to materially impact on market expectations for OCR hikes next year.
The market prices around a 30% chance of a hike in January, fully prices a hike for March and almost 125bps of hikes by the end of next year. We do not expect a hike as early as January but do expect the OCR to be at least 125bps higher by the end of 2014.
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