By Kymberley Martin
There was a sharp 6-8bps decline in NZ swaps yesterday.
Overnight, US 10-year yields pushed up from 2.57% to 2.63%
The move lower in NZ yields was initiated by the fairly dovish commentary from US Fed Chair Yellen yesterday morning.
The move then extended after the release of NZ Q1 GDP. Confounding expectations for a positive surprise relative to consensus, the Q1 release came in at 1.0%q/q (1.1% expected).
NZ 2-year swap closed down 6bps, to 4.15%, while 10-year closed down 8bps at 4.85%.
The ongoing debated around the new ‘equilibrium’ cash rate in both the US and closer to home will be an important driver of the long-end of the curve.
Yesterday’s lowering of the Fed’s forecast for the ‘neutral’ FFR from 4.0% to 3.75% will keep the debate alive and well regarding the NZ OCR.
We continue to see a ‘neutral’ OCR around 4.25%. But we expect a normal cyclical overshoot to a peak of 5.0% by end-2015.
NZ bonds also put in a good rally yesterday, reflected in a strong DMO auction of $300 mln of NZGB2020 bonds. The yield on NZGB23s closed down 7 bps at 4.43%.
Overnight, following the release of the US Philadelphia business survey (17.8 vs. 14.0 expected), US yields pushed a little higher. 2-year rose from 0.43% to 0.46% while 10-year pushed up from 2.57% to 2.63% currently.
Today NZ ANZ consumer confidence will be delivered. There are no key data releases scheduled for the US tonight.
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