By Kymberly Martin
Following the lead from offshore, NZ yields closed down 1-7bps on Friday, with a flattening bias to the curve.
NZ 2-year swap ended the week at the familiar 2.84% level. The market continues to price only a 20% chance of a rate hike from the RBNZ in the year ahead.
The 2-10s swap curve closed flatter at 105bps. It remains well within the 95-125bps range we think will hold for much of the year ahead.
NZ bonds yields also declined 4-7bps on Friday. The DMO’s tender of $120m of NZGB23s (the first in three weeks) attracted strong bidding, with a 4x bid-to-cover ratio.
On Friday night, US 10-year yields rose from 1.86% back up to 1.95%. Expect this move to put upward pressure on NZ long yields at the open today.
Domestic data this week are meaningful monthly partials but are unlikely to be significant market movers. Tuesday’s RBNZ survey of expectations will be interesting for what it reveals about current inflation expectations.
While current actual inflation readings sit below the 1% lower band of the RBNZ’s target range, 2-year ahead expectations were around 2.2% at last reading. We expect house price inflation expectations may also have moved even higher.
Offshore, if is a week for ‘minutes’, with the RBA, US Fed and Bank of England all releasing policy meeting minutes.
Today, the NZ PSI will be released which we suspect will show the NZ Services sector remains firmly in expansion along with it Manufacturing counterpart.
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