By Kymberly Martin
The NZ curve opened up with a steepening bias, yesterday following the previous night’s post-Yellen inch higher in yields. However the move did not extend too far.
NZ swaps closed up 1-3bps. We continue to see steady mortgage paying in the front of the curve.
In conjunction with the lack of offshore receivers currently, this supports our view that NZ swaps will push higher into, and post, the 13 March RBNZ meeting (where we expect a 25bps rate hike).
Yesterday the DMO under-accepted offers for its reverse tender of NZGB 2015s. There were $144m of successful offers when the DMO was potentially willing to accept $500m. They only accepted down to 3.24% on yield which was mid-market at the time. This supports our view NZGBs are still fairly tightly held given the relative lack of new supply on the horizon. The next nominal bond tender is 27 February.
Overnight, offshore yields continued to gradually rise.
US and German 10-year bonds crept around 4bps higher to 2.76% and 1.72% respectively. UK Gilt yields got a boost after the release of the Bank of England’s inflation report. In similar gymnastics displayed by the Fed, the BoE has emphasised it will keep the cash rate low (0.5%) well after its jobless threshold is met. Any subsequent rate increases will be gradual. The justification for such a path in the face of upward revisions to growth is downward revisions to CPI forecasts. The BoE sees inflation at just 1.9% at end 2016. Still the market appeared unconvinced and yields pushed higher across the curve.
Today, we will receive the domestic data highlight for the week, the BNZ PMI. We see little to suggest this should stray from the path of strong expansion shown last month (56.4). Hence nothing to impinge on a gradual drift higher in NZ yields.
Across the Tasman all eyes will be on the AU employment report. Further deterioration in the unemployment rate to 5.9% is expected. It would likely take a much worse outcome for the market to re-price RBA rate cuts.
Tonight Fed Chair Yellen will speak to the Senate, likely reiterating previous non-market-threatening commentary.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.