By Kymberley Martin
NZ swaps pushed up a further 1-2bps while NZ bond yields rose 3-4bps yesterday.
Overnight US 10-year yields consolidated around 2.64%.
Paying activity via the mortgage sector continues, helping to push NZ swaps higher. However, offshore receivers are still present, helping to limit the overall rise in yields.
2 and 5-year swap now sit at 4.03% and 4.47% respectively.
A 25bps OCR hike from the RBNZ today (9am NZT) should not surprise many as it is almost fully priced by the market.
The focus will be on accompanying commentary (especially relating to the NZD) and the published 90-day bank bill track.
The market now prices not much more 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 expect yields to continue their recent rebound, post-MPS. We see current ‘fair value’ on 2-year swap around 4.60%.
Across the Tasman, today’s focus will be the AU employment report for May. Our NAB colleagues are looking for the unemployment rate to tick up to 5.9% from 5.8% in April. Some slight further deterioration in the unemployment rate is consistent with the RBA remaining ‘on hold’ for an extended period. Thereafter, we see the RBA beginning to raise the cash rate from Q4 next year. The market currently prices a similar outcome.
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