Fixed Interest Markets by Kymberly Martin
There were heavy falls in NZ interest rate markets following on from declines offshore. Overnight, “safe haven” yields were in a holding pattern ahead of EU meeting announcements.
Yesterday, swap yields fell 5-12bps across the curve. The curve also flattened by around 4bps on the day, after the sharp steepening seen in recent weeks. Yields also took their cue from across the ditch, where Australian underlying CPI came in lower-than-expected. This caused a sharp fall in Australian yields.
At end of day, NZ 2-year swaps had declined 8bps to 3.07%. Having broken lower, we now see support at the 3.00% level. 10-year swap yields declined 12bps to 4.62%. The 2s-10s curve flattened from 159bps to 155bps.
Bonds similarly had a strong rally. The yield on 13s declined 10bps to 2.67%. The yield on 21s fell by 16bps to 4.4%. It has now given up more than half of the gain in yield it made from late September. The sharp fall in NZ bond yields was also partly triggered by the AU CPI number. However, the NZ-AU 10-year bond yields spread still narrowed further to just 3bps.
Market expectations for RBA rate cuts in the coming year were in increased from 100bps to 120bps yesterday. The market is now fully pricing a 25bp rate cut at the next meeting in November. AU 3-year swap yields fell 15bps to 4.4%.
Heading into today’s RBNZ meeting the market is pricing no chance of a rate hike today, but just over 30bps of rate hikes in the coming year. We believe the RBNZ’s statement will be designed to keep this pricing largely intact. Watch to see if the statement still makes explicit reference to an intention to hike at some point.
Overnight, the market has been very much in limbo as it awaits announcements from the EU officials meeting. US 10-year yields have traded higher with some volatility, from 2.12% to 2.17%. German yields traded in a 10bps range, returning to trade at 2.05%.
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See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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