Swaps lower on UST slips; eyes on CPI but RBNZ expected to hike twice more in 2014

By Raiko Shareef

NZ swaps closed down 4-6 bps across the curve on Friday, while US 10-year Treasury yields dropped 2 bps, extending the week’s declines.

While reflecting some of Thursday night’s rally offshore, the NZ market also had to contend with some receiving pressure at the short end.

With little in the way of mortgage paying, the 2-year swap yield dropped 4 bps to 4.19%.

At the long end, the NZ curve continues to take its cues from moves offshore.

The US 10-year Treasury yield fell for the fifth consecutive session, taking the weekly decline to 14 bps.

At 2.52%, the bond rate has not been closed this low since May.

Part of the decline last week can be laid at the feet of some equity market nerves, as the US earnings seasons warms up, and amid Portuguese banking hiccups. US bonds benefit from their safe haven appeal.

This week, NZ fixed interest investors will pay close attention to the CPI inflation report for Q2, due Wednesday. Headline inflation is picked to rise from 1.5% to 1.8%, taking it within spitting distance of the RBNZ’s 2% target midpoint.

We expect the RBNZ to hike twice more in 2014, in July and December.