There was only limited change to NZ yields yesterday.
Overnight, US 10-year yields pushed up from 2.13% to 2.19%.
It was another relatively quiet day in the domestic market in the backdrop of limited data releases as the market looks towards Thursday’s RBNZ meeting. NZ 2-year swap closed for the day at 2.81%.
The market continues to price around a 90% chance of a 25 bps RBNZ rate cut this week and that the OCR will be cut to around 2.54% by March next year. We expect the RBNZ will likely follow this week’s cut with another cut in Oct, assuming data remains soft. This would take the OCR to a cyclical trough of 2.50%.
US yields traded higher overnight, along with a rebound in US equities and general improvement in market sentiment. US 2-year yields traded up from 0.70% to 0.73%. 10-year yields traded from just below 2.13% (the 200-day moving average) up to 2.19%.
This morning there is a speech by Fed’s Kocherlakota on monetary policy to look out for. In the absence of key US data releases this week, ‘Fed-speak’ may be the greater influence on the market’s expectations for what the US FOMC may do next week. Currently, Fed fund futures are pricing a Fed funds rate at just 0.29% by year-end, from its current level mid the 0-0.25% range.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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