QSBO inflation suggestions and absent receivers sees local swap rates rise; RBNZ's McDermott may add hawkish push

By Raiko Shareef

NZ swap rates pulled higher yesterday, despite lower yields offshore.

The local 2-year rate rose 2 bps to 4.26%.

The NZ rates market shrugged off an initial dip lower on the back of headline weakness in yesterday’s QSBO report.

Net confidence dropped from +52 to +32 in Q2, but the details appeared more hawkish.

For one thing, capacity utilisation rose from 89.4% to 80.6%, pointing to rising inflationary pressure.

Local banks looked to use the opportunity to pay fixed rates, pushing the curve up 2bps-3bps for the day. Some of this can be attributed to a lack of liquidity, with receivers relatively absent from the market.

Overnight, core bond yields accelerated the fall which began on Monday. US 10-year Treasury bonds fell a further 5 bps to sit at 2.56%.

The sell-off in equity markets ahead of earnings seasons, and amid concerns around overextended valuations, is likely contributing to the appeal of bonds.

Today, we anticipate that RBNZ Chief Economist McDermott’s speech will play to the hawkish end of the market, given the announced topic of “potential output”.

Offshore, only the Fed’s June Minutes will attract decent attention.