By Kymberly Martin
In a fairly active day, NZ swaps closed up 1-3 bps.
Overnight, US 10-year yields drifted down from 2.38% to 2.35%.
Sentiment in the NZ market appears to have taken a shift, post the RBNZ’s more hawkish comments and Fonterra’s recent announcement. On the latter, we would strike a note of caution, as we still see downside risk to Fonterra’s current season payout.
But in this backdrop, NZ swap and bond yields pushed higher yesterday, despite the previous night’s decline in yields offshore.
NZ 2-year swap closed 1 bps higher at 3.96%, and 5-year up 2 bps at 4.24%. The 2-10s curve sits at 54 bps.
Despite the slight shift in NZ sentiment, supported by a strong BNZ October PMI reading yesterday (59.3), we believe short-end yields will remain relatively range-bound in the near-term. Solid to strong growth indicators will need to be accompanied by definitive signs of inflation before the market pushes higher. This will likely not occur until well into 2015.
In the meantime, we see NZ 2-year swap being capped below 4.10%. Ultimately we see a cyclical peak in 2-year swap around 4.60% in early 2016.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.