Any shift in RBA thinking in today's minutes could influence RBNZ rate action expectations

Fixed Interest Markets by Kymberly Martin

It was a fairly uneventful day in NZ interest rates markets. Bond yields were little changed, and swap yields declined a little. Offshore markets were also subdued.

NZ markets showed little reaction to the highs and lows of yesterday’s local data releases. First up, the Westpac consumer confidence survey was somewhat disappointing, falling to 101.3 from 112.0. Soon after, the Performance Services Index was stellar at 56.6, up from 50.6 in the previous month. Finally the NBNZ business survey confirmed the economy remains firmly in expansion mode.

Swap yields bobbed around, closing a little lower. 2-year yields closed down 4bps at 2.65%. 5-year yields closed down 3bps at 3.21%.The 2s-10s curve steepened a little to 135bps.

The yields on NZGB21s closed little changed at 3.81%. The NZ-AU 10-year spread has widened to 8bps however, as AU 10-year bond yields declined to 3.73%.

Overnight, Italian sovereign bond yields continue to creep higher, though Spanish yields have been declining. Tomorrow the ECB will launch its new initiative of offering unlimited 3-year loans to banks, who offer eligible collateral, including euro-region government bonds.

US 10-year yields have inched a little lower to 1.83%, while German equivalents are now around 1.88%.

There are no local data releases today. However the release of RBA minutes will be closely watched. Any marked shift in RBA thinking could also influence the market’s expectations for future RBNZ action. Currently our NAB colleagues expect one further rate cut from the RBA in February. We expect the RBNZ to begin gradually hiking rates in Q3 next year.

See our interactive bond rate charts here.

Kymberly Martin is part of the BNZ research team. 

All its research is available here.