By Kymberly Martin
The NZ swap curve flattened yesterday.
Overnight, US 10-year yields pushed up from 2.14% to 2.21%
Yesterday morning the RBNZ largely delivered on our expectations. It maintained a subtle tightening bias, but flattened its projected 90-day bank bill track.
The track now implies a first OCR hike around the turn of 2015/2016. It also implies the OCR peaks at 4.25% by late 2017 (previously 4.50%).
Recall, ahead of the meeting the market already priced an OCR that only reaches 4.0% in this cycle.
Therefore there was not a sharp reaction in NZ short-end yields. In fact, 2-year swap closed virtually unchanged at 3.83%.
Meanwhile long-end yields followed the previous night’s offshore moves lower. 10-year swap closed down 3 bps, at 4.26%. The yield on NZGB23s closed down 4 bps, at 3.78%, its lowest level since June last year.
Overnight, the ECB undertook its second round of lending under the TLTRO (targeted longer-term refinancing operation). Banks borrowed just €130 bln of a possible €317 bln. The limited uptake (though widely expected) adds strength to the calls for the ECB to undertake full-blow QE (purchasing sovereign bonds) as soon as possible. German 10-year bonds continue to hover near historic lows, at 0.68%.
Meanwhile, US equivalents rebounded after the release of stronger than expected Nov US retail sales data, to trade around 2.21% currently.
This will likely prompt some early steepening of the NZ curve today. Domestically we have the BNZ Manufacturing PMI to look out for.
Today the DMO will tender NZ$300m of NZGB27s (delayed to Friday due to yesterday’s MPS).
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