NZ swap and bond yields closed down 4-5 bps yesterday.
Overnight, US 10-year yields traded between 2.24% and 2.27%.
NZ yields declined across the curve from the open yesterday, taking their cue from the downward moves in US yields at the end of last week. NZ 2-year swap closed down 4 bps, at 2.74%. The market now looks for a trough in the OCR of around 2.41% by mid next year.
US yields traded a relatively tight range overnight. US 10-year yields failed to push above 2.27% after the US Empire Manufacturing survey came in below expectation. It confirmed the US manufacturing sector remains in deep recession, impacted by the strong USD. US 10-year yields trade near the lower-end of their range currently, at 2.24%. The market has slightly reduced its expectation for a Fed rate hike in Dec, to 64%.
Today, the domestic focus will be on the release of the RBNZ’s Q4 inflation expectations survey. The last reading was at 1.94%, consistent with the RBNZ’s 2% central inflation target. The Bank would welcome a further tick up in this measure, given its current concerns for disinflationary pressures. The release of the RBA’s November Minutes today, also has potential to impact on the NZ market by proxy.
Then it will be all eyes on the GDT dairy auction, taking place in the early hours of tomorrow morning. It is shaping up to be pretty weak, which may cause the short-end of the NZ curve to price in greater probability of a near-term RBNZ cut. Currently the market only prices around a 40% chance of cut at the RBNZ’s 10 Dec meeting.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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