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NZ swaps push higher and steeper. UST 10yr yields rise, should push up following first Fed hike mid-year. RBA decision tomorrow

Bonds
NZ swaps push higher and steeper. UST 10yr yields rise, should push up following first Fed hike mid-year. RBA decision tomorrow

By Kymberly Martin

NZ swaps pushed a little higher and steeper on Friday.

US 10-year yields ended the week at 1.99%.

NZ yields opened a little higher on Friday on the back of the previous night’s moves. There was no discernible response to the solid ANZ confidence reading in the afternoon.

On the day, NZ 2-year swaps closed up 2 bps at 3.59% while 10-year closed up 3 bps at 3.77%.

Our bias is still to see a steeper swap curve into 2H, contingent on higher US long yields.

On Friday night US 10-year yields experienced a bit of turbulence. They slumped on the disappointing Chicago PMI release, then spiked higher after the better-than-expected US consumer sentiment reading.

They ended the week at 1.99%. Continued consolidation within a 1.90-2.15% range appears likely near-term.

The key test to this range will come with Friday’s US payrolls report.

Longer-term, we see yields pushing up to 2.50% by year-end following a first Fed hike, mid-year.

The most significant influence on NZ rates in the next couple of days will likely be tomorrow afternoon’s RBA meeting. Consensus looks for a further 25 bps cut, taking the cash rate to 2.0%.

Our NAB colleagues believe the next cut will be delayed. The market prices around a 50% chance of a cut.

With pricing evenly balanced, expect a sharp market reaction, whatever the outcome. NZ OCR pricing and short-end rates will directionally follow AU moves.

 

 

 

Daily swap rates

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Opening daily rate
Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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