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US yields hold in spite of some weak factory data. Fed readies more groundwork. RBA minutes will set local tone

Bonds
US yields hold in spite of some weak factory data. Fed readies more groundwork. RBA minutes will set local tone

By Kymberly Martin

NZ swaps closed down 1-3 bps across the curve yesterday. Overnight, US 10-year yields traded between 2.31% and 2.37%.

It was a fairly quiet start to the week. NZ swaps touched intra-day low mid-morning, before shifting a little higher in the afternoon.

2-year swap closed down 1 bps, at 3.19%. The market prices slightly more than a 50% chance of a further RBNZ cut at the next meeting (July 23) and a total of a further 36 bps of cuts in the year ahead. This appears a fair representation of risks at present.

Today, the RBA will release its June Minutes. Ahead of this the market prices almost a 70% chance of a further RBA cut within the year ahead. Our NAB colleagues see the more likely course of action that the RBA remains on hold, with the cash rate at 2.00%.

US yields dipped to intra-night lows after both the US Empire Manufacturing index and industrial production data came in below expectations. However, from close to 2.31%, US 10-year yields have subsequently returned to trade around 2.37% currently.

The market still has its eye on the bigger prize this week, Thursday morning’s (NZT) US FOMC meeting. The Fed is likely to undertake more work to prepare the ground for a rate hike in coming months. This will be the first hike since the Fed slashed rates to close to zero in 2008.

There are no events scheduled domestically today. NZ short-end rates may take their cue from any moves in AU rates in response to the RBA Minutes.

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

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