US 10-year treasuries continue to rise; NZ swap rate hits 4-month high; NZ current account deficit could rise to as much as 5% of GDP

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There was modest upward pressure on US Treasury yields ahead of the FOMC.  The US 2-year yield was up 2bps to 0.99%, reaching another multi-year high. 

US 10-year Treasuries were up 4bps to 2.30%. They have shown a decent move up this week already, having begun the week at 2.13%.

The local trading session was a familiar one, with upward pressure on swap rates, as the market continues to ponder an environment of stability in the OCR rather than further cuts. 

Some receivers of fixed rates are closing out of positions ahead of year-end, while mortgage and corporate paying flows continue. 

NZ’s 2-year swap rate rose by 4bps to 2.86% to a 4-month high, while the yield curve continued to steepen, with the 10-year rate up 6bps to 3.73%. The 2-year rate is now up 16bps since the RBNZ “eased” policy a week ago.

NZ current account data came and went without much fanfare. The annual deficit of 3.3% of GDP was close enough to market expectations. 

We still see the deficit climbing to circa 5% over the next couple of years. The breakdown showing strong net exports of goods and services confirmed more upside risk to our 0.6% q/q GDP production pick for later this morning.  The expenditure GDP figure could easily come in at 1.0% q/q.  A strong outcome would support our existing bias on monetary policy, with no rate change expected over the foreseeable future.