NZ swaps closed 1-2 bps lower on Friday. US 10-year yields closed for the week at 2.12% having suffered some harsh volatility around the release of US payrolls data.
It was a fairly quiet day for interest rate markets on either side of the Tasman ahead of the all-important US payrolls report on Friday night. NZ 2-year swap closed for the week at 2.80%.
Ahead of this Thursday’s RBNZ meeting the market prices around a 90% chance of a 25 bps cut. It also prices a trough in the OCR of around 2.50% by mid next year. We expect the RBNZ will cut this week, as it hinted at its last meeting that “some further easing seems likely”. Since then there has been a large fall in local economic confidence and significant global ructions. These suggest a cut sooner rather than later.
The NZ 2-10s swap curve ended the week at 82 bps. We continue to expect the curve will remain biased to steepen through to year-end within a 60-115 bps range.
Friday night’s US payrolls report provided something for everyone. Overall it was not sufficient to significantly change the market’s view on future Fed activity. Fed fund futures still price little chance of a Sept Fed hike and only a 0.28% FFR by year-end.
There was enough in Friday’s report to convince those with a pre-conceived view the Fed will hike in Sept, or those looking for the Fed to wait until later in the year. We fall in the latter camp. Immediately following the release, US 2-year yields traded a volatile range between 0.66% and 0.73%, before ending the week at 0.70%. Equally, US 10-year yields traded from 2.11% toward 2.17%, before ending the week at 2.12%.
As general risk appetite also remained soft, and equities declined, German 10-year yields continued their recent decline, to end the week at 0.67%.
Today, market sentiment will be driven by the re-opening of the Chinese market after being closed Thurs-Fri. Otherwise there are only limited local data releases, and the US market closed will be closed this evening for Labour Day.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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1 Comments
The labor force was down another 41k last month and remains 115k below January. Since October 2012, the labor force has only added 1.57 million, of which 1.05 million was in January 2015 alone (a likely statistic discontinuity). That means an increase of just 523k where jobs are purported to have been solid and even highly expansionary. Read more
Any more Keynes and the labour force will be extinguished under the weight of zirp fabricated credit.
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