By Kymberley Martin
NZ swaps and bond yields closed little changed, although there was a bit more activity in markets yesterday. Overnight US 10-year yields slipped back to 2.70%.
The tug-of-war at the short-end of the NZ curve between domestic payers and offshore receivers continues.
This is keeping 2-year swap within quite a tight range, and fairly well-supported below 4.0%. We continue to see current ‘fair value’ at 4.30% based on our OCR expectations. We see the OCR at 4.0% by the end of this year, and 5.0% by the end of next.
Today the DMO will auction $200m of NZGBs 2020s.Given this is the first auction of nominal bonds in a month it will be closely watched for demand dynamics, particularly from offshore investors. Currently offshore investors own around 63% of NZGBs.
Overnight, US 10-year yields slipped from above 2.75% to 2.70% after the release of February US durable goods data. Although the headline number came in above expectation (2.2%m/m vs. 0.8%m/m) it was flattered by a bounce-back in transportation. Underlying orders were slightly softer than expected.
Today will bring the domestic data highlight of the week, the NZ trade balance. We expect a strong report. This should support impetus for the RBNZ to get on with its job of returning the OCR to ‘neutral’, (circa 4.25%) in the first instance.
Tonight, the latest reading of US Q4 GDP will be released along with US pending home sales data.