By Kymberly Martin
NZ swaps had a very quiet day in the backdrop of no domestic data releases. The market continues to price around 28bps of RBNZ rate hikes in the coming 12 months. We expect 50bps.
Bonds continued their sell-off yesterday with yields rising 5bps across the curve. Demand for NZ government bonds remains weak, not helped by a flurry of alternative NZD bond issuance.
Kauri issuance has had a very strong start to the year, and today the LGFA (local government funding agency) will auction $250m of bonds.
We expect demand here should be solid given the notable yield pick-up that these bonds still offer to NZGBs.
Yesterday’s RBA minutes acknowledged there is some evidence the 175bps of cuts since October 2011 is starting to work. Still the Bank displayed a level of anxiety about areas such as the investment outlook and high AUD.
Following the minutes, the market has reduced its expectation of a cut at the March meeting to 25%, but still sees 32bps of cuts in the year ahead.
Overnight, the positive German ZEW data surprise was not sufficient to budge German and US bonds from recent trading ranges.
US 10-year yields continued to bob around the 2.0% level. The next key event for US yields will be tonight’s US Federal Reserve minutes.
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