By Kymberly Martin
NZ swaps and bond yields closed down 1-5 bps overnight, with a flatter curve. Overnight, US 10-year yields traded between 1.52% and 1.58%.
NZ yields took their prompt from the post-FOMC fall in offshore yields. The greatest pressure was felt at the long-end of the curve. NZ 10-year swap traded down to a new low of 2.73%.
At the short-end of the curve, yields were briefly boosted yesterday morning after a surprisingly strong Q1 GDP release. NZ 2-year swap ultimately closed only 1 bps lower, at 2.56%. The market prices just over a 50% chance of a rate cut at the RBNZ’s 11 Aug meeting. It also priced that the OCR will ultimately trough around 1.95% within the year ahead.
RBA’s Kent contributed to the debate on inflation targets yesterday during questioning after a speech in Brisbane. He said he sees no need to make adjustments to the RBA’s inflation target. He believes the inflation target has quite a degree of flexibility. He also suggested a lower target runs the risk of lowering inflation expectations.
The Bank of Japan announced no additional stimulus measures at its meeting yesterday. Japanese 10-year yields have traded down to historic lows below -0.2%.
Overnight the Bank of England left its cash rate unchanged at 0.5% and its asset purchases steady. The accompanying statement highlighted the risks ahead if the UK votes to leave the EU. It said a vote to leave could lead to a materially lower path for growth and a notably higher path for inflation. It also stated it could pose risks to the global economy via “financial market and confidence channels”. However, a later scheduled speech by the BoE’s Governor was cancelled after a pro-EU law-maker was shot and killed when meeting with her constituents. UK 10-year yields have made new lows below 1.07%.
In this backdrop, US 10-year yields also dipped overnight, touching lows below 1.52%. This was their lowest level since their historic lows below 1.4%, of July 2012. However, they have now rebounded to trade at 1.57%. Overall, we see further downward pressure at the long-end of the NZ curve today.
Daily swap rates
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Kymberly Martin is on the BNZ Research team. All its research is available here.
1 Comments
Overall, we see further downward pressure at the long-end of the NZ curve today.
Together with the prospect of future economic collapse as revealed by the 10 year rate for both funded and unfunded interest rate price discovery mechanisms. It's a universally priced declaration. Read more
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