Payside flows from the ‘real economy’ should continue to push yields higher, says BNZ

By Kymberley Martin

NZ longer-dated swaps closed up 4bps.

Overnight, US 10-year yields returned to their post-FOMC-highs, trading at 2.78% currently.

After the slightly more hawkish than anticipated announcement from the US Fed yesterday morning, the NZ swap curve opened the day higher and steeper.

At one point 10-year swap pushed up by as much 12bps. Later in the day, yields slipped lower with notable offshore receiving interest at the short-end. NZ 2-year swap actually closed down 1bps on the day, at 4.02%.10-year closed up 4bps at 5.07%.

The 2-10s curve has steepened to 105bps from below 100bps earlier in the week.

We continue to see current 2-year ‘fair value’ at around 4.30% based on our forecasts that see the OCR at 5.00% by the end of 2015.

Payside flow from the ‘real economy’ should continue to push yields in this direction, though offshore receiving interest will fight to limit any move.

Overnight, US 10-year yields pushed back up toward yesterday morning’s post-FOMC highs after the US Philadelphia Fed survey surprised to the upside (9.0 vs. 3.2 expected).

Yields sit at 2.78% this morning.

Today there is an array of NZ 2nd data releases including net migration, consumer confidence and credit card billings.

Overall, we anticipate similar dynamics to remain in play on the NZ swap curve i.e. a continued struggle between domestic paying and offshore receiving at the short-end, and a bias to near-term curve steepening.