NZ bonds underperformed swap yesterday.
NZ swaps closed up 2-3 bps while bond yields rose 4-6 bps.
Overnight, US 10-year yields have traded down from 2.15% to around 2.11% currently.
The NZ market once again took its cue from offshore markets. Pay-side flow early on, saw NZ 2-year swap trade up to 2.71%. However, it later retraced some of the move, closing for the day just below 2.70%. NZ 10-year swap closed up 3 bps, at 3.53%, with the 2-10s curve trading at 84 bps.
The market continues to look for a trough in the OCR of around 2.40% by mid-next year. We see this as a fair reflection of current risks. Our central view remains a further 25 bps cut at the Oct meeting, taking the OCR to a cyclical trough of 2.50%. However, solid arguments can certainly be made for why the Bank may wish to delay its next cut until its December meeting.
Overnight, against consensus expectations, the Norges Bank cut its deposit rate from 1.00% to 0.75%. This is the latest in a long line of Central Banks to surprise the market with a rate cut. It likely reflects downside risk to Norway’s oil producing economy, represented by the plunge in global oil prices.
In the backdrop of soft equity markets, demand for US Treasuries appeared solid overnight despite some decent data delivery on either side of the Atlantic. US 10-year yields traded from evening highs above 2.15% to intra-night lows below 2.08%. Subsequently they have returned to trade at 2.11%.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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In the backdrop of soft equity markets, demand for US Treasuries appeared solid overnight despite some decent data delivery on either side of the Atlantic. US 10-year yields traded from evening highs above 2.15% to intra-night lows below 2.08%. Subsequently they have returned to trade at 2.11%.
An unsettled wholesale funding backdrop has extended the demand for collateral beyond Treasuries to Gold.
The combined eurodollar relationship in perhaps this renewed economic and fundamental reconfiguration (certainly a shift in perceptions) is, in my view, the primary agent in gold’s rise – especially since the FOMC meeting. Gold prices continue to defy the defilement of the retreating “dollar” supply (and collateral flow) and thus signal a great deal more apprehension more broadly. Read more
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