Steeper local curves follow offshore shifts. NZGB yields rise more than swap. Eyes turn to major central bank reviews next week

By Doug Steel

Global yields generally edged higher overnight. US 10-year yields nudged fresh highs at 2.54% to 2.55%, before easing back to around 2.53%.

Higher yields coincided with a circa 2% lift in oil prices, while the market anticipates what lies ahead from the Fed, BoE and BoJ at next week’s meetings.

The German 10-year Bund had a look at 0.5% for the first time since early 2016.

Unsurprisingly, NZ yields pushed higher immediately after the stronger than expected inflation data. But the market did not see reason for the RBNZ to lift the OCR any early than was already built in. The market prices not much more than a 50% chance of a hike by the August meeting, similar to this time yesterday.

NZ 2-year swap yields ended the day 3 bps higher at 2.455%. The market is essentially more convinced the RBNZ will need to lift the OCR, but not necessarily any earlier than the market was already contemplating. To us, in the least, the inflation pick up, including signs of core inflation firming, will surely remove the RBNZ’s previous easing bias come the 9 February MPS.

NZ curves steepened yesterday, as longer term yields were further enhanced as they followed the previous night’s offshore moves. NZ 5-year swap closed up 6 bps, with 10-year swap up more than 7 bps. NZGB yields again rose more than swap (NZGB 10-year bond close around 9 bps higher), influenced by offshore moves as well as making way for the new 150m of 2037s issued yesterday (at a bid to cover ratio of 3.69).

There is little on the calendar to drive market change today, ahead of what looks a busy next week with the Fed, BoE, BoJ all meeting and local (likely firm) labour market data to assess.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.