By Kymberly Martin
Despite some intraday movements, NZ swap and bond yields closed little changed yesterday. Overnight, US 10-year yields attempted, and failed, to break above 2.0%.
The NZ 2-10s curve remains around 108bps. We believe it can still steepen further within its clearly established 95-125bps range.
5-year swap sits at 3.40%. This is around 20bps above its early-May lows but still offers attractive value for hedging over the period, in our view.
We reiterate our core view that we will see higher lows and higher highs on swap yields this year. This suggests dips should be assessed as hedging opportunities.
Yesterday’s RBNZ survey of inflation expectations showed a slight easing in 2-year-ahead expectations from 2.17% to 2.06%. This remains a smidge above the mid-point of the RBNZ’s 1-3% target range.
Following this week’s RBA minutes the market has reduced RBA rate cut expectations. However, it still prices a further 25bps of cuts in the year ahead, consistent with our NAB colleagues view. The minutes emphasised the high AUD and lower inflation as rate cut catalysts.
US 10-year yields attempted an assault on the 2.0% level early this morning, but have been knocked back to around 1.94% currently.
There are no domestic data releases today. Tonight, the Bank of England will release its most recent minutes. Last night’s data showing UK CPI slipped from 2.8%y/y to 2.4%y/y in April will likely be a welcome relief.
Early tomorrow morning, Fed Chairman Bernanke testifies and Fed minutes will be released. We suspect Bernanke may leave the door open for QE to move in either direction in the future.
It would likely take clear assertion that tapering of QE is on the horizon to get US 10-year yields to break through the 2.0%-2.10% window.
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1 Comments
Yesterday’s RBNZ survey of inflation expectations showed a slight easing in 2-year-ahead expectations from 2.17% to 2.06%. This remains a smidge above the mid-point of the RBNZ’s 1-3% target range.
Treasury's in-house expectations diverge considerably from the above consensus over the near term
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