By Kymberly Martin
NZ yields closed up around 3bps across the curve yesterday. 2-year swap, at 2.95%, sits right at the top of its range since mid-March.
A break above this level will open the way for a return to the 3-3.1% window it traded in February this year. At that time the market priced around 30bps of RBNZ rate hikes for the subsequent 12 months.
Currently the market prices around 20bps of hikes for the year ahead. We expect a 25bps hike in March next year.
NZ bond yields similarly closed up around 3bps. The yield on 10-year bonds, at 3.48%, is close to its highs for the month. It will likely move higher today given overnight moves offshore.
Tomorrow’s DMO auction of $120m of nominal bonds will be closely watched for indications of current demand for NZGBs.
With US trading resuming after the holiday break US 10-year yields were trading around 2.04% last night.
Early this morning a double-whammy of positive US data was sufficient to push yields up through the 2.10% ceiling that had contained them since the start of the year.
Yields now sit at 2.13%, opening the potential for a move into a higher range. Our year-end target for US 10-year yields remains 2.50%.
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