By Kymberly Martin
It was a quiet start to the week in NZ markets. Overnight, US 10-year yields pushed up from 2.55% to 2.60%.
NZ swap yields closed down 2bps across the curve yesterday. After running through stops in recent sessions the upward momentum in yields seems to have now faded.
2-year swap remains close to its highs for the year at 3.34%. The 2-10s curve sits at 133bps.
The market now prices around 75bps of RBNZ rate hikes by this time next year. We forecast 100bps of hikes by that time.
But for now, we do not see the immediate catalyst to push yields higher, and are aware that the combined carry and roll on 2-year swap (7bps/mth) is compelling for receivers.
The next domestic data with the greatest potential to impact on market pricing in coming weeks is next Wednesday’s employment data. Although we expect the headline unemployment rate to tick down to 6.1% (from 6.2%), the data is notoriously volatile so a surprise either way is possible.
Yesterday, the LGFA announced the details of its bond tender, tomorrow. It will auction $10m of LGFA15s and $185m of LGFA21s. This is another chunky tender of longer duration bonds.
However, given developments in outright yields, spreads and offshore sentiment since the last tender, we suspect demand dynamics may be somewhat more supportive at this event.
Markets were fairly muted overnight. US pending home sales data helped to underpin US yields. US 10-year yields sit around 2.60% this morning, still well within the 2.40% to 2.75% ranges they have traded for the past five weeks.
Today, it is relatively quiet on the domestic data front. However, across the Tasman, all eyes will be on a scheduled speech by RBA Governor Stevens.
With the market now pricing around an 80% chance of a cut at the RBA’s next meeting (Aug 6), all focus will be on any policy-related comments.
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