NZ swaps fell across the curve on Friday.
Offshore, German 10-year yields drifted lower, ahead of Sunday’s Greek referendum, whilst the US market was closed for Independence Day holiday.
NZ 2-year swap closed down 5 bps, at 2.96%, its lowest close since June 2013. The market now prices that the OCR will be cut to around 2.66% in the year ahead. This is back toward the level it had been before last year’s 100 bps of RBNZ rate hikes.
The NZ 2-10s curve closed the week at 96 bps, its highest level since around April last year. We expect further steepness to above 110 bps by year-end. This is partly predicated on our view that US long yields will ultimately be higher, after the US Fed begins to raise rates later this year (Sept is our core view).
For today the bid for ‘safe haven’ US and German bond yields may remain, in the backdrop of uncertainty surrounding the outcome of Greek elections.
Ahead of official announcement of election results, exit polls suggest the ‘No’ vote is ahead. Greek negotiators have always argued a ‘No’ vote would allow them back to the negotiating table with creditors, with a stronger hand. Most others have suggested a ‘No’ vote would be the next step toward Greece exiting the Euro.
Domestically, rates markets are likely looking ahead to tomorrow’s release of the Q2 Business Opinion Survey (QSBO). This is likely to have slowed but probably not as much as the recent ANZ business survey, given it doesn’t directly survey farmers.
Also look out for other indicators of inflation such as pricing and cost trends.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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