International equities push higher and bond yields rise; RBNZ seen as 'flexible' in use of policy tools

By Kymberly Martin

In a fairly quiet day, NZ yields closed down 4-5 bps.

Overnight, US 10y yields pushed up from 2.14% to 2.20%.

NZ 2 and 5-year swap now sit at 3.94% and 4.21% respectively.

Our strategic view remains for higher yields next year, based on expectations of a higher OCR than the market current prices, and some sell-off in US Treasuries. Near-term however, we see little in the way of domestic catalysts to prompt higher yields. Meanwhile the long-end will remain at the whim of offshore yields.

Overnight, while equity markets appeared keen to extend their rebound, assisted by a continued, solid S&P500 earnings reporting season, ‘safe haven’ bonds sold off.

Separately, data was released to show Eurozone Govt debt/GDP declined to 90.9% in 2013 from 92.6% previously. German 10-year yields pushed up from 0.82% to 0.87%.

US equivalents rebounded from early evening lows below 2.14%, to sit at 2.20% currently. These moves will apply upward pressure, particularly to the longer-end of the NZ curve today.

There are no domestic data scheduled for today.

The RBNZ is holding a workshop on macro-prudential policy. It is unlikely to result in attention-grabbing headlines. But the fact it is taking place shows the Bank remains flexible in its use of traditional or macro-prudential tools, in order to target medium term inflation and any perceived risks to financial stability.

Across the Tasman, today’s data highlight will be the release of AU Q3 CPI. Consensus expects a trimmed mean reading of 2.7%y/y. Ahead of the release, the market prices around a 50% chance the RBA will undertake a further 25bps cut in the year ahead.