By Kymberly Martin
NZ swaps closed down a further 3bps across the curve yesterday.
Overnight a strong ADP employment report saw US 10-year yields gap from 2.95% toward 3.0%.
With only three weeks to go until the RBNZ’s next meeting the market has inched back its expectations for a rate hike at the meeting. Only around a 45% chance is now priced.
We continue to expect a first hike in March.
Meanwhile the market still prices around a 25% chance of a further rate cut from the RBA. Our NAB colleagues anticipate a cut by mid-year.
NZ 2 and 5-year swap closed at 3.80% and 4.67% respectively. 2-year now looks close to ‘fair value’ based on our expectations for 200bps of OCR hikes by the end of 2015. 5-year however still appears as an ‘expensive’ point on the curve for paying.
We would not be surprised to see some flattening of the mid-curve, as paying interest concentrates on other parts of the curve as we approach the first OCR hike.
Overnight, benchmark US 10-year yields tracked sideways ahead of the release of the US ADP employment report. On the strong release US 10-year yields gapped from 2.95% to 2.99%. For now, the invisible ceiling at 3.0% remains intact. The next challenge will be the US Fed’s December Minutes to be released at 8am today (NZT).
Today, NZ building permits will be released along with the latest print on the ANZ commodity price index. QV house price data is also expected by week end.
Tonight, the focus will be on the meetings of the Bank of England and ECB.
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