By Kymberley Martin
NZ yields were little changed in a fairly quiet day of trading.
Overnight, US and German yields suffered volatility around the ECB announcement, but sit only marginally lower currently.
NZ 2 and 5-year swap closed the day at 3.95% and 4.41% respectively.
These levels are still 15 bps and 35 bps below their peaks of recent months.
We believe the market is now complacent on the outlook for the OCR, pricing little more than 50 bps of hikes by year-end and just 130 bps over the next two years.
At next week’s meeting we believe the RBNZ will remain committed to raising the OCR by around 200 bps over this period.
Overnight, the ECB met market expectations for action to try and counter deflationary risk in the region.
On the announcement, German bunds experienced a bit of a roller-coaster. Initially 10-year yields dipped below 1.40% before surging to 1.49% and then drifting back toward 1.40% currently.
Similarly, US 10-year yields surged from 2.57% to 2.64% before trailing off to sit at 2.58% this morning.
With all this excitement there was really nothing to see at the Bank of England’s meeting. It left its cash rate at 0.50% and asset purchases unchanged.
Today, the local market is unlikely to want to make large moves ahead of tonight’s key risk event, US payrolls release. Consensus is looking for a 215k outcome and for the unemployment rate to tick up from 6.3% to 6.4%.
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2 Comments
BNZ wrong, the market right.
Watch how quickly the OCR predictions change once auckland housing market 'stalling/flat lining/moderating' gets confirmed.
Interest rates will be at low levels for another few years. Yield chasers will look at good valued property in 'secondary cities', as won't be seeing any love from bank deposits.
NPV's of assets get dramatically increased on a downward revision of the discount rate (future interest rates determining future capitilisation rates). This is a global trend. This will see P/E multiples become higher. Yields on property accepted at lower rates (read price increases for high yielding property outside of auckland).
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