Markets comfortable with positions ahead of RBNZ's MPS. UST 10yr yields approaching 2% which should see support

By Kymberly Martin

NZ swap and bond yields closed up 1-2 bps.

Overnight, US 10-year yields traded up from 1.88% to 1.91%.

It was a relatively quiet start to the week for the domestic market in the absence of major data releases. Friday’s offshore moves provided only modest uplift to NZ yields.

The NZ swap curve steepened marginally. However, over the medium-term we continue to see the NZ 2-10s swap curve biased to steepen within a 55-115 bps range (72bps currently).

At the short-end of the curve, the market appears comfortable with its positioning ahead of this Thursday’s RBNZ meeting.

NZ 2-year swap remains at 2.44% as the market continues to price around 40 bps of cuts from the RBNZ in the year ahead. Around a 25% chance of a cut this week is priced. We do not expect a reluctant RBNZ to cut so soon, but see increasing risk of a cut within the year ahead.

In a typically light post-payrolls start to the US data week, US yields have continued their drifted higher, as the global oil price has also extended its gain. US 10-year yields have pushed up from 1.88% to 1.91% as the WTI oil price has gained a further 3.2%.

Technically we would now see US 10-year Treasuries encountering support if yields approach 2.00%.

A series of Treasury auctions later in the week may prove the next test for demand.