By Kimberly Martin
The NZ swap curve flattened further on Friday. On Friday night, US 10-year yields traded between 2.61% and 2.66%.
As the news of increased Ukraine tensions permeated markets, NZ swaps opened down on Friday morning. However, this move was soon reversed at the front-end of the curve.
We expect that now OCR hikes are a reality we may see a flurry of paying via the mortgage book.
Mortgage holders may now rush to ‘fix’ regardless of ‘value’ in swaps. However, based on our OCR trajectory we see ‘fair value’ for 2 and 3-year swap at 4.30% and 4.60% respectively (currently 4.03% and 4.28%).
The long-end of the curve remains more susceptible to offshore-inspired rises in risk aversion. NZ 10-year swaps closed down 5bps on Friday.
The 2-10s curve plunged below 100bps for the first time since early-May last year.
On Friday night, US 10-year yields bobbed around between 2.61% and 2.66%. Treasuries remain relatively well-bid as safe-haven assets, given the deterioration in global risk appetite.
Our global risk appetite index has fallen to 52% from 65% at the start of last week.
This morning, markets will focus on the results of the Crimean vote on whether to secede from Ukraine, due imminently. The Ukraine, U.S. and E.U. consider the vote to be illegal.
Meanwhile, domestically, the Performance of Services Index will be released today. It is difficult to see this detracting from the story of strength in the NZ economy.
The NZ consumer confidence indicator will also be released.
Combined, these events will likely result in further flattening of the NZ curve today.
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