BNZ sees a "greater risk the RBNZ will ultimately raise by more than the 200 bps"

By Kymberly Martin

It was a quiet day in NZ markets given the Auckland anniversary day celebration and Australia day holiday.

NZ 2 and 5-year swaps sit at 3.79% and 4.48% respectively. 2-year is now around 10bps below its early-year highs, and 5-year about 25bps below this point.

New year Kauri issuance has helped apply receiving pressure at the mid-curve.

This part of the curve now appears less ‘expensive’ for payers. This is especially true if accounting for the risk the OCR ultimately peaks above the 4.50% we forecast.

We continue to see asymmetric risk around the extent of the rate hiking cycle ahead.

We see greater risk the RBNZ will ultimately raise by more than the 200bps which is our central forecast.

That said, we do not expect the RBNZ to raise the OCR this week. Rather we see it setting the stage for a first hike in March.

Overnight, while volatility persisted in emerging market currencies, and equities provided another round of negative returns, US Treasury yields stabilised. US 10-year yields traded a range between 2.72% and 2.76%.

They traded back toward the lower bound after the release of softer than expected US new home sales data for December (-7.0%m/m vs. -1.9% expected).

There are no local data scheduled for release today.  Focus across the Tasman will be on the NAB business confidence survey.