By Kymberly Martin
On Friday, NZ swap closed down 1-3bps, with a flattening bias to the curve. NZ bond yields closed little changed.
Over last week, NZ swap yields moved higher by around 8bps at the short-end and 13bps at the long-end.
However, these upward moves lost momentum on Friday. This left 2-year swap at the upper end of the relatively tight range it has traded for the past ten weeks.
The market prices close to an 80% chance of a 25bps rate hike from the RBNZ in the year ahead.
There is little on the domestic agenda likely to challenge these expectations this week. Local data is fairly thin on the ground, with the highlight being Friday’s ANZ Business Confidence survey. We expect this to report more of the same i.e a strong pulse.
Last Friday night, after a stronger-than-expected German IFO business survey, German bonds initially sold off. However, the sell-off was not maintained.
Similarly, US 10-year yields were unable to break above 2.03%, ending the week at 2.01%.
For US long yields to break into a higher range (as we ultimately believe they will) will likely take convincing upside surprises on US labour data, or direct comments on the timing of QE ’tapering’ from Fed Chairman Bernanke.
Neither of those events seems imminent. This week’s US data highlights will come later in the week, with the second reading of Q1 GDP, pending home sales and the Chicago PMI.
For today, it looks to be a quiet day domestically and offshore, aided by limited data releases and a UK Bank holiday.
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