By Kymberly Martin
NZ swap and bond yields declined 3bps across curves yesterday.
The market once again fully prices a 25bps RBNZ rate cut by mid next year. 2-year swap yields closed at 2.60%, now around 10bps from the bottom of their range.
The market continues to price almost 60bps of further rate cuts from the RBA as we head into its meeting next week. This falls two days ahead of the RBNZ’s.
The market prices a 60% chance of a cut at that meeting.
If the RBA were to cut, it could see markets ramp up expectations of cuts from the RBNZ. Our central case remains for no cut, but the RBNZ being ‘on hold’ for a protracted period. However, we do expect the tone of its statement next Thursday to be more dovish.
The DMO has announced its tender of $100 mln of NZGB 17s and $150 mln of NZGB 23s for today. This will be the first issuance of the 2017 bond since July this year.
Overnight, market sentiment experienced a bit of an intra-night turnaround. Comments made by Obama and Republican House Speaker Boeher, raised the market’s hopes of a fiscal cliff deal ahead of Christmas. Positive murmurs helped reverse equity loses, and US long bond yields to rebound from their lows.
After touching 1.60%, US 10-year yields have returned to sit above 1.62%. Significant resistance is seen to US bonds pushing higher, if yields approach 1.55%.
Today, the key local data release will be the ANZ business survey. A solid result would help underpin NZ yields.
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