By Kymberly Martin
NZ swaps and bonds closed down 3-8 bps on Friday, driven by offshore events.
US yields stabilised on Friday night.
On Friday NZ markets responded to the previous night’s rise in risk aversion in the wake of developments in the Ukraine and Gaza.
NZ 2-year swap closed down 3 bps, at 4.10%, while 10-year closed down 7 bps, at 4.78%.
The 2-10s swap curve has flattened to a new low since January 2009, of 68 bps.
In the ‘risk off’ mood that prevailed on Friday, NZGBs enjoyed a decent rally. Yields closed down 3-5 bps with the yield on NZGB23s at 4.30%. This is now only around 10 bps above the lows reached in late May.
In the absence of domestic data releases it was the offshore sentiment that dictated the mood locally on Friday.
On Friday night, risk appetite reversed its previous night’s plunge. Equity markets rose as the VIX index (fear gauge) dipped from the previous day’s above 15, back to 12. US 10-year bond yields crept off the previous day’s lows, to end the week at 2.48%.
Domestically, this week will be all about Thursday’s RBNZ meeting. The market currently prices around an 85% chance of a 25 bps hike at the meeting. It also prices that the OCR will be around 75 bps higher in a year’s time.
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