Long end rates follow US Treasuries higher. Short end rates catch some of the RBA's influences lower

By Kymberly Martin

The NZ swap curve has steepened further.

Overnight, US and German 10-year yields touched 2.49% and 1.05% respectively.

NZ short and long-end swaps moved in opposite directions yesterday. The long-end primarily followed the previous night’s move higher in yield offshore. NZ 10-year swap close up 7 bps, at 4.14%.

Meanwhile, NZ short-end swaps slipped lower into the close. The move appeared to be assisted by comments from RBA Governor Stevens that suggested the RBA was “open to further easing if beneficial to sustainable growth”.

While we have long argued there is little reason to extrapolate monetary policy stances across the Tasman the market remains inclined to do so. NZ 2-year swap closed down 3 bps, at 3.34%.

Ahead of today’s (9am NZT) RBNZ meeting the market prices around a 66% chance of a further RBA cut within the coming year, and almost 50 bps of cuts from the RBNZ. Pricing for today’s meeting is still quite evenly balanced between those looking for a cut and those expecting the RBNZ to remain ‘on hold’. We remain in the latter camp.

We expect any increased easing bias since the March MPS may be expressed through downward revisions to the Banks’ 90-day bank bill trajectory.

Expectations for RBA activity will likely be influenced by the release of the AU employment report this afternoon. Our NAB colleagues are aligned with consensus in believing employment growth will be strong enough to keep the unemployment rate at 6.2%.

US retail sales data will likely be the key release for US yields tonight. After touching intra-night highs above 2.49%, US 10-year yields currently sit around 2.46% after a solid auction of 10-year Treasuries early this morning.

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Kymberly Martin is on the BNZ Research team. All its research is available here.