By Kymberly Martin
NZ swap yields slipped 2bps across the curve yesterday. Demand for global ‘safe haven’ bonds returned overnight.
The market continues to price around an 85% chance of an RBNZ cut in the year ahead, with 15% assigned to a cut by year end. 2-year swap closed at 2.64%, still very much mid-range.
Bond yields closed little changed yesterday. The sell-off in AU bonds has run out of steam, helping NZ bond yields to stabilise, after their recent run higher.
Overnight, demand for ‘safe haven’ US and German bonds returned. There was little data of note. A deal in Greek negotiations still appeared tantalisingly out of reach.
Add to the mix focus renewed focus on US fiscal cliff negotiations and the market mood sobered somewhat from its recent optimism.
US 10-year bond yields slipped form 1.69% to 1.64%. Peripheral European spreads to German bonds ceased their recent narrowing.
Given the moves seen overnight, expect NZ yields to open under downward pressure, particularly at the long end of the curve.
Today, the RBNZ’s survey of 2-year-ahead inflation expectations will be released. As of Q3, these expectations were on a declining trend but still elevated at 2.3%.The RBNZ will be watching the Q4 outcome with interest, having stated this is a key variable to monitor.
Tonight, along with the ongoing political headlines on both side of the Atlantic there are plenty of US data to give more colour on the cyclical state of the economy.
The market will likely show the bigger reaction to any data disappointments. Any further rally in US 10-year bonds will likely find stiff resistance if yields head toward 1.55%.
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