By Kymberley Martin
NZ swaps ended last week 5-6bps higher.
The yield on US 10-year bonds now sits at 2.54%.
As US yields have rebounded from their lows, NZ yields have followed.
We continue to see steady if unspectacular paying via the mortgage book and from SME businesses, looking to take advantage of the recent dip in yields.
NZ 2-year swap closed up 5bps, at 3.93%, while 10-year closed up 6bps at 4.73%.
NZ bonds also sold off. The yield on NZGB23s now sits at 4.25%.
Meanwhile, while NZ observed Queen’s birthday yesterday, US bonds sold-off quite sharply at the start of the week.
Initially, US yields showed some volatility around the release of the US ISM last night which came in at 55.4 in May. But the more enduring impact was for yields to rise from around 2.48% to 2.54%. Potentially, the survey’s pick-up in prices paid (to 60.0 from 56.5) may also have contributed.
Aussie bond futures have followed early this morning, suggesting NZ yields will open higher this morning.
Across the Tasman it will be all eyes on the RBA today, as it announces its target rate. The RBA is seen as being on hold for an extended period. Therefore the focus will be on commentary regarding the labour market, the AUD and the investment outlook.
The market currently prices around a 20% chance of a 25bps cut from the RBA in the coming nine months. AU April retail sales will also be released today.
Domestically, the Q1 NZ terms of trade data will be released. We expect these to mark a 40-year peak, before moderation occurs in following quarters.
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