By Kymberly Martin
NZ swaps closed down about 1 bps across the curve on Friday.
On Friday night, US 10-year yields popped higher.
On Friday, NZ yields dipped on increased speculation of rate cuts across the Tasman.
The market now prices more than 30 bps of cuts from the RBA by mid next year.
Ultimately, however, NZ swaps closed down only 1bps across the curve after payers emerged into the afternoon. NZ 2 and 5-year swap sit at 3.85% and 4.08% respectively. The 2-10s curve trades at 45 bps.
The strength in Friday night’s Nov US payrolls report adds conviction to two of our central views.
One, the Fed will drop the “considerable time” phrase at its 17 Dec meeting, which it has used to delineate the time between the end of QE and the start of rate hikes.
Two, we expect the Fed to begin to raise rates mid next year, a little ahead of the market that is pricing a Q3 hike.
US 2-year yields popped from 0.55% to end the week at 0.64%. 10-year equivalents pushed up from 2.26% to end the week around 2.31%. Even German 10-year yields managed a jump from 0.76% to 0.78%. Aussie bond futures followed the directional move. We therefore expect NZ yields (particularly at the long-end) to open higher today.
Domestically today we have manufacturing data released, but this week’s highlight will be Thursday’s RBNZ meeting. Here we expect the Bank to maintain a subtle tightening bias but likely flatten its projected 90-day bank bill track.
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