NZ swaps closed down 4-11 bps on Friday. On Friday night, US 10-year yields traded between 2.33% and 2.40%.
NZ yields followed the previous night’s moves lower on Friday, reducing some of the steepness of the curve.
The 2-10s curve has now slipped to 85 bps, from 91 bps previously.
The market has increased its expectation for action from the RBNZ. It now prices more than a 50% chance of a cut at the July 23 meeting. It also prices an OCR that will decline a further 39 bps, from current, in the year ahead. This overall pricing seems a fair representation of risks at present, although we place greater probability of a follow up 25 bps cut at the July meeting.
On Friday night, US 10-year yields made intra-night lows around 2.33% after US PPI data came in slightly below expectation. However yields rebounded after a better-than-expected University of Michigan sentiment survey, to end the week at 2.39%.
It is a significant week ahead, with the US FOMC (6am Thurs NZT). As we inch closer to the first Fed rate hike (we have this pencilled in for Sept) we expect increased volatility around Fed announcements and US data delivery.
Locally, this week’s data highlight will be Thursday’s release of 1Q GDP. At the start of the week we expect NZ rates will largely take their cue from offshore developments.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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