By Kymberly Martin
NZ yields pushed up a further 2-5 bps yesterday.
Overnight, US 10-year yields slipped from 2.44% back to 2.40%.
The move up in NZ swaps was helped by the release of data showing NZ net migration at an historically strong pace. July recorded a seasonally adjusted gain of 4540, up from 4270 in June. This is a measure the RBNZ is watching closely. It sees it primarily providing additional demand stimulus.
Today's data will keep the RBNZ on it toes. Along with strong business confidence and PMI and PSI data, we see it as a reason for the market not to get too carried away with reducing OCR hike expectations.
Currently the market only prices around a 25% chance of hike by year-end, and around 40 bps by this time next year. We believe this pricing is looking quite skinny, particularly as the NZ TWI has now fallen to the RBNZ's Q4 forecast average.
On the day, NZ 2-year swap closed up 2 bps at 4.09%. 10-yr closed up 5 bps at 4.70%.
The rise in long-end yeilds was also assisted by the push higher in US yields, post the Fed Minutes.
Overnight, US data delivery was uniformly on the high-side of expectations. Despite this, US yields were unable to continue yesterday’s push higher. US 10-year yields have drifted back down to 2.40%. In the countdown to Fed Chair Yellen’s speech on the labour market at Jackson Hole this weekend the market is likely wary that she may yet stick to a highly dovish script.
Today there is little in the way of scheduled data releases locally or offshore. Yellen’s speech will be the focus into weekend.
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