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UST benchmark rates fall but NZ swap rates rise. RBA looking at 'sub-average growth'. Eyes on Fonterra board meeting

Bonds
UST benchmark rates fall but NZ swap rates rise. RBA looking at 'sub-average growth'. Eyes on Fonterra board meeting

By Kymberly Martin

NZ swap and bond yields rebounded a little on Friday, closing up 1-2 bps.

On Friday night, US 10-year yields slipped from 1.97% to end the week at 1.93%.

In a day of only 2nd tier NZ data releases the main driver of NZ yields was the previous night’s rise in US yields. These had erased around ½ of their post-FOMC plunge.

However, the moves in NZ yields were much more modest. 2-year swap closed up 2 bps, at 3.55%. The entire curve moved higher in almost parallel fashion.

Comments by RBA’s Stevens on Friday kept another RBA rate cut well in view.

He said AU will have a period of sub-average growth. Households and business are less optimistic and the RBA will continue to support the economy (i.e. policy will remain accommodative). This reaffirms the RBA is on an easing bias, though there was no hints as to the timing of the next move.

Our NAB colleagues still think May is more likely than April. The market prices around a 45% chance of a cut at the April meeting and a total of more than 50bps by this time next year. NZ-AU 2-year swap spreads sit not far from their wides, at 151bps.

On Friday night, US yields failed to maintain their upward momentum. US 10-year yields drifted down from 1.97% to 1.93%. German equivalents pottered along close to historic lows, ending the week at 0.18%.

On the data front it is a quiet start to the week domestically and offshore.

A key influence on the short-end of the NZ curve will be delivered later in the week, in the form of Wednesday morning’s half-year results from Fonterra. We anticipate the cooperative will maintain its $4.70 milk price for the 2014/15 season. This will be crucial for the market and the RBNZ, who has stated dairy prices are one of the four key prices it is watching (the others being oil, housing, fx).

 

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA

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