By Kymberly Martin
NZ swaps closed down 1 bps across the curve, assisted by the continued plunge in AU swaps.
Overnight, US 10-year yields traded a range ahead of tonight’s payrolls data.
The market now prices around 30 bps of rate cuts from the RBA by Q3 next year, despite a better than expected AU retail sales number yesterday. We are not convinced the RBA will necessarily cut rates but increasingly see the probability it remains on hold well through next year.
Closer to home, the market now prices just 40 bps of further RBNZ rate hikes in the next two years. This is a fair representation of risks at present, but ultimately we see market expectations pushing a little higher. We see 75 bps of hikes by end 2016.
Meanwhile NZ 2-year swap, at 3.86%, is pushing toward the lower end of the 3.80-4.00% range we see sustaining in coming months. The 2-10s curve sits at 45 bps. We see a steepening bias from 40 bps to 70 bps in the year ahead.
Overnight, German bond yields suffered some volatility after the ECB’s meeting. The Bank delivered no change of policy but clearly indicated QE was coming in Q1. German 10-year yields initially fell to 0.73% before rebounding to 0.78%. US equivalents followed a similar trading pattern but returned to trade mid-range, at 2.27% currently.
Now all eyes will be on tonight’s US payrolls data. Given the way US yields have rebounded over the past week, the market’s response tonight may be asymmetric. A disappointing result could see yields back toward recent lows (2.16%), while a strong number may only engender a modest further rise in yields.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.