NZ swaps closed down 1-5 bps yesterday.
Offshore overnight, German and US 10-year yields pushed higher.
It was a relatively quiet day domestically as the market awaits tomorrow’s RBNZ meeting. The meeting promises to catch more than its usual attention on the global stage.
Market pricing is still closely balanced between those looking for a cut and those expecting the Bank to remain on hold tomorrow. We remain in the latter camp. However, we will not be surprised to see the Bank hint at rate cuts later in its forecast period via its published 90-day bank bill track.
NZ 2-year swap closed just 1 bps lower yesterday, at 3.37%, but longer-dated swaps followed the rally in offshore bonds. 10-year swap closed down 5 bps, at 4.07%, taking the 2-10s curve slightly lower, to 70 bps.
Overnight, US and German yields drifted higher in the absence of any data shocks.
An auction of US 3-year Treasuries in the early hours of this morning saw a yield of 1.12%, the highest levels since April 2011. Fed fund futures price a Fed funds rate that will be around 1.20% by the end of next year. We continue to expect a first Fed hike this September and very gradual progression higher thereafter.
From 2.36%, US 10-year yields touched as high as 2.45% early this morning, before returning to trade at 2.41% currently.
Today promises to be another low-key day domestically as the market awaits tomorrow’s RBNZ meeting. However, the curve will likely feel some steepening pressure following overnight moves.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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