Equity markets rise in improving outlook. Local liquidity factors weigh on our rates with loan demand soft. Eyes on RBA speech

By Doug Steel

There doesn’t look to be much on the calendar to disturb markets in the day ahead. RBA Governor Lowe’s speech tonight will be worth a look while some stabilisation in dairy auction prices overnight may offer a modicum of support to the NZD.

US 10-year Treasury yields initially dipped under 2.33% yesterday, on a mild risk off move associated with the German political developments.

But any thoughts of testing the 200dma average around 2.305% evaporated as risk sentiment improved and equity markets pushed upwards.

Yields rose overnight to currently sit just over 2.36%, up around 2 bps on the day. The strong leading index reading helped push US 2-year Treasury yields up to a new cycle high of 1.75%, nearly 3 bps higher and maintaining flattening pressure on the US curve.

In a relatively quiet session for local interest rates yesterday, the curve flattening pressure continued reflecting offshore moves. Long yields pushed lower than short term yields. NZ 5-year swap yields declined 1.5 bps to just above 2.63% and 10-year swap yields closed 2 basis points lower at just over 3.12%. NZ 2-year swap yields finished marginally lower at just below 2.16%, as easy domestic liquidity factors continue to weigh.

Again there isn’t much on the calendar for the day ahead to generate excitement. Today’s RBA minutes are unlikely to add much to the body of knowledge, given the Statement on Monetary Policy has already been released. Tonight’s speech from RBA Governor Lowe will be of most interest.

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