By Kymberly Martin
NZ swaps closed up 2-3bps across the curve yesterday. Overnight, US 10-year bond yields pushed up from 2.52% to above 2.60%.
It was a fairly quiet day in NZ markets ahead of today’s RBNZ’s meeting. Swaps ticked up a fraction but still remain close to the bottom of ranges of the past month.
The market currently prices around 50bps of RBNZ rate hikes in the year ahead, with the first 25bps hike priced by April next year.
This pricing is a reasonable reflection of risks around our own expectations of a first hike in March, with the OCR 75bps higher in a year’s time.
Today, we do not expect the RBNZ’s statement to intentionally try to influence this pricing, even though officially the RBNZ’s own forecasts imply a first OCR hike in Q3 next year.
The RBNZ had ample opportunity in its June Monetary Policy Statement (MPS) to become less dovish in the face of increasingly positive local data and forward inflation risk, but it deferred.
So it would be strange for the Bank to shift tack at this OCR Review. It is most likely to repeat the phrase that ‘…we expect to keep the OCR unchanged through the end of the year’.
Our view remains that after a first OCR hike in March next year the OCR will peak at 4.50% by mid-2015 as the macro-economic – not just macro-prudential – risk of maintaining a historically-low cash rate continue to mount.
The NZ 2-10s swap curve sits around 130bps, down from highs earlier this month above 140bps. However, the curve will likely be biased to steepen today, given moves seen offshore overnight.
The positive surprise from European PMI data set German 10-year yields on a path higher, a move mimicked by US equivalents. US yields then gained a further boost from the US new home sales data.
All up, US 10-year yields rose from 2.52% to above 2.60% early this morning. This takes yields back toward the middle of the 2.40-2.75% range they have traded over the past month.
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