The US yield curve continued to show a flattening bias, with the 2-year Treasury rate up 1 bp to a new cycle high of 1.72% and the 10-year rate down 3 bps to 2.34%, taking the 2s10s spread down to 62 bps, a 10-year low.
NZ’s benchmark 90-day bank bill rate fell to a record low of 1.905% on Friday.
Banks are well ahead of their funding targets as raising money offshore has been easy, while credit growth is relatively soft. So domestic liquidity conditions are very easy and this is driving short-term rates to new lows, with some “risk-free” rates trading below the OCR.
This is keeping a lid on the 2-year swap rate, which trades at the lower end of its recent range at 2.16%, despite the RBNZ’s recent upgrade to its inflation forecasts and slightly more hawkish tone.
The near term risk is that the 2-year swap rate drifts even lower.
The day ahead looks to be uneventful, with only second-tier local data in the mix. On paper, the week ahead doesn’t look to be particularly eventful either and the US Thanksgiving holiday later in the week should add to the quiet tone.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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