By Kymberly Martin
NZ swaps closed just 1-2 bps higher on Friday.
US 10-year yields closed up 5 bps, at 1.87% following the US payrolls report.
With little in the way of domestic data and an AU retail sales report that did not provide a major surprise, NZ swaps enjoyed a fairly leisurely Friday. Ahead of this Thursday’s RBNZ meeting, NZ 2-year swap closed for the week at 2.44%.
The market continues to price around 40 bps of cuts from the RBNZ in the year ahead, although only around a 25% chance of a cut this week.
We believe insufficient evidence has accumulated to force a reluctant Bank to cut this week. However, since the RBNZ’s January OCR review, developments in global markets, NZ bank funding costs, the dairy sector and inflation expectations have likely added weight to its easing bias. This could be reflected in the Bank’s update of its 90-day bank bill track this week.
The NZ 2-10s curve ended the week at 70 bps. We anticipate further steepening at the start of this week, on the back of Friday night’s offshore moves.
The potentially mixed messages in Friday’s US payrolls report saw US 2-year yields close up just 2 bps, at 0.86%, although the market now prices around a 70% chance of a 25 bps hike by year-end. Fed fund futures now price around 75 bps of hikes over the next three years, up from around 55 bps not long ago.
US 10-year yields closed up around 5 bps, at 1.87%. German equivalents closed up 7 bps, at 0.24%. Moves were also mimicked by Aussie bond futures.
We expect some upward pressure on long-end NZ yields today.
Daily swap rates
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