By Kymberly Martin
NZ swaps pushed up by 3-4bps yesterday. Overnight, the US Treasury market was closed for US Veteran’s Day.
NZ 2-year swap closed up 3bps, at 3.92%. We see little to nudge it out of a fairly tight 3.85%-4.00% range in coming weeks. By contrast, we see the opportunity for long-end yields to push higher, if led by a rise in US long yields.
Yesterday, 10-year swap closed at 4.45%, with the 2-10s curve at 53bps.
NZGB yields also pushed a little higher across the curve. NZGB23s yields now sits at 4.04%. The yield on these NZ generic ’10-year’ bonds remain well above all developed market peers, with the exception of Greece. NZ-AU and NZ-US23s spreads sit at 79bps and 184bps respectively.
Today the focus domestically will be on the release of the RBNZ’s Financial Stability Report. There is a flurry of speculation surrounding the fate of the LVR restrictions the RBNZ applied to the banking sector last October.
This document would be an appropriate vehicle for their discussion. If the restrictions were removed, we believe it could easily re-fuel the (Auckland) housing market. At the margin this could provide some risk the RBNZ would need to resume its hiking cycle ahead of December next year (our central view).
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