By Kymberly Martin
NZ swaps and bonds closed up 3-6bps yesterday in relatively quiet trading. Overnight US 10-year yields pulled back to 2.54%.
With continued paying interest from the ‘real’ economy, short-end swap yields closed up 6bps.
As previously mentioned we suspect such interest will keep any dips in swap yields fairly short-lived for now.
2-year swap now sits at 3.22%. Our end-year target is 3.60%.The market now prices around a 40% chance of a RBNZ hike by year-end and 50bps of hikes in the year ahead.
The 2-10s swap curve closed around 136bps. Near-term the shape of the curve is still highly dependent on the day to day moves in US Treasuries.
However, we do think the curve now looks too steep and would look for flattening over the medium-term.
By mid-next year we see the curve heading toward 60bps, as the short-end moves up as the RBNZ’s rate hiking cycle gets underway.
Overnight, a slight drift lower in US 10-year yields was accentuated by the release of US Q1 GDP revisions that were lower than expected (1.8%q/q vs. 2.4% expected).
This saw 10-year yields end the night around 2.54%. German 10-year bonds have also rallied with yields declining from yesterday’s highs above 1.82% to sit at 1.76%.
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