By Kymberly Martin
NZ swaps closed down 2-5 bps yesterday.
Overnight, US 10-year yields pushed up from 2.15% to 2.19%.
The long end of the NZ curve continued to slump on the back of the previous night’s offshore moves and further declines in global oil prices.
The result was further flattening of the NZ 2-10s curve to 42 bps. As this curve is back toward mid-Oct lows we expect to see further corporate paying being enticed out the curve. We do not expect it to break convincingly through the 40 bps level but rather to have a steepening bias in 2015. This of course will be highly dependent on the direction of US long yields.
Overnight, US 10-year yields initially dipped toward 2.15% before the release of the US ISM Manufacturing index (58.7 vs. 58.0 expected). Despite the level of strength in this index being slightly at odds with other survey evidence the market took it at face value. US 10-year yields rebounded to trade around 2.19% currently.
Today, the ANZ commodity price index will be released and the latest GDT dairy auction will take place in the early hours oftomorrow morning.
Commodities are well-known to be the point of weakness in an otherwise still strong domestic economy. Therefore, any softness in these releases is unlikely to send rates into a tail-spin. It will likely confirm that short-end yields will remain tightly range-bound in the months ahead, until definitive indications of inflation emerge. We do not see this occurring until well into H2 2015.
The RBA is due to meet today. It is widely expected to keep rates unchanged at this meeting. However, the market still prices a 70% chance of a 25 bps cut by Q3 next year.
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.