Market suggests RBNZ to keep OCR unchanged; Australian yields rise on better export data and drags NZ swaps rates higher too; US data comes in under expectations, yields marginally softer

By Kymberly Martin

NZ swap and bond yields closed up 1-3bps yesterday. As the Treasury market re-opened after Monday’s holiday, US 10-year yields have drifted a little lower in the early hours of this morning.

NZ curves were marginally steeper yesterday. The release of the ANZ business survey provided markets with little reason to change their view on future RBNZ action. The headline numbers were little changed, still consistent with solid GDP growth.

Inflation expectations within the survey remained low, but steady. That was the last of the key domestic data releases ahead of the RBNZ’s meeting next Thursday. We continue to see it as most likely the RBNZ remains on hold at this meeting, keeping at least one more cut in reserve. The market prices a 20% chance of a cut next week.

In the afternoon, the release of stronger-than-expected AU net exports data provided upside risk to tomorrow’s AU GDP release. AU yields pushed 2-3 bps higher. This also put some upward pressure on NZ yields. NZ 10-year swap closed up 3bps, at 2.94%. 

Overnight, markets were a little livelier as the US and UK returned from public holidays.US yields initially inched a little higher. They subsequently dropped after both the Chicago PMI and US consumer confidence index came in below expectation. However, the release of the Fed’s preferred inflation measure, the core PCE deflator, came in line with expectation at 1.6%. US 10-year yields now trade just below 1.84%.

Today, general market sentiment, and by implication, demand for ‘safe haven’ bonds, may be set by the release of China Manufacturing PMI data. Tonight there are also a slew of PMI prints expected on both sides of the Atlantic.

Kymberly Martin is on the BNZ Research team. All its research is available here.