By Kymberly Martin
There was a slight further flattening of the mid-curve for NZ swaps yesterday. NZ bond yields were unchanged. Overnight, US 10-year yields climbed back above 2.86%.
The modest decline in NZ mid-curve swap rates yesterday resulted from receiving demand on the back of further Kauri issuance. In this case NIB (Nordic Investment Bank) launched a $425m 5-year Kauri bond.
By contrast, short-end yields were well-supported after the release of the QSBO yesterday.
The Quarterly Survey of Business Opinion was strong, consistent with GDP growth running around a 4% annual pace. Still, it was no stronger than anticipated and showed no urgent signs of inflation.
There was nothing in the data to change our view the RBNZ will begin to raise rates from March (not January) this year, with the OCR 125 bps higher by year-end.
NZ 10-year bond yields have remained remarkably stable since the start of the year, trading around 4.67% currently.
Meanwhile, offshore yields have declined, widening NZ-AU and NZ-US 10-year spreads. These now sit at 58 bps and 181 bps respectively. We see NZ-AU spreads within a 40-90 bps range in the year ahead.
The release of US December retail sales data early this morning (control group 0.7%m/m vs. 0.3% expected) inspired some volatility in US yields. US 10-year yields have pushed higher from below 2.84% last evening to almost 2.87% currently.
Domestically today, the RBNZ’s weekly house price data is expected to be released. Tonight, the US Empire Manufacturing index will be released along with the Fed’s Beige Book survey of business.
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