By Kymberley Martin
NZ swaps and bond yields pushed up a further 2-3bps across curves yesterday.
Good pay-side flow from the mortgage and SME sectors can once again be seen.
However, there are still offshore receivers willing to take the other side of this position, preventing a sharp rise in swaps. 2 and 5-year swap closed at 4.00% and 4.45% respectively. 2-year is now around 13bps above its late May lows as the market prepares for tomorrow’s RBNZ meeting.
A 25bps hike by the RBNZ tomorrow is now virtually fully priced. The attention will therefore focus on the Bank’s commentary.
The market now prices less than 125bps of OCR hikes in the coming two years. The RBNZ’s previously published (March MPS) 90-day bank bill track implied 200bps of hikes by this time. Therefore, even if the RBNZ were to slightly tweak its 90-day track to build in a little near-term flexibility, it will likely still be notably more hawkish than current market pricing.
We anticipate a push higher in yields post the MPS. However, we are also aware that global investors, immersed in European deflation fears, and the backdrop of low US inflation and a reluctant Fed, will be waiting in the wings as receivers.
In fairly quiet markets overnight that appeared to beckon the start of the Northern summer, equities were fairly flat while US Treasuries sold-off. The yield on US 10-year bonds pushed up from 2.59% to 2.64%.
Today, NZ electronic card transactions data will be released. Across the Tasman the Westpac AU consumer confidence survey is due. Tonight, a key focus will be UK employment data.
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1 Comments
So where does this leave someone who is attracted by 5.85% fixed for 2 years by a government-owned bank only to find out in the small print that it's part fixed and part floating and actually at a higher rate, so I'm told? Surely there is no need for this game playing, especially if the off-shore cash is getting cheaper?
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