By Kymberly Martin
The NZ curve closed a little steeper yesterday.
RBA did not cut.
Overnight US 10-year yields traded a tight range.
The NZ market was relatively subdued in the run-up to the RBA meeting at the NZ close yesterday.
There continues to be corporate paying interest at the long-end of the swap curve given its current flatness. We think this will be an ongoing theme and will prevent the 2-10s curve breaking through late-Jan lows below 10 bps. Rather we see the curve biased to steepen into 2H from its current level of 21 bps.
The Kauri issuance season is also kicking along with two new deals in the market yesterday which generates receiving interest at the mid-curve. NZ 5-year swap closed little change on the day at 3.66%.
The NZ LGFA (Local Government Funding Agency) has announced it will offer a new 2027 maturity bond at its tender next week. We anticipate solid demand in a world still dominated by search for yield.
The RBA left rates unchanged at 2.25% yesterday, against the market’s 60% pricing for a cut.
However, the Bank more explicitly moved to an easing bias, introducing the phrase; “further easing of policy may be appropriate over the period ahead”. The market will now view each meeting as ‘live’.
There was however slightly more attention given to strongly rising Sydney house and other asset prices in the statement.
On the announcement, AU 2-year swap gapped from 2.02% toward 2.10%. The market still prices at least 50 bps of cuts for the year ahead and is pricing a 60% chance of a cut at the next meeting.
Overnight, in the absence of key data releases, US 10-year yields traded between 2.07% and 2.11%, currently mid-range.
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