Rising benchmark rates will likely put steepening pressure on the NZ curve; main impetus comes from better German economy data

By Kymberly Martin

NZ swaps closed down 4-5 bps across the curve on Friday. 

On Friday night, US 10-year yields ended the week at 2.05%.

Whilst current low NZ swap levels are attracting corporate and SME paying this is being more than offset by investor receiving interest.

Receiving NZ swap relative to offshore equivalents has also become more attractive as spreads have pushed wider in the past week or so.

NZ 2-year swap closed at 3.55%. We continue to see paying opportunities arising if it falls back below 3.50%.

This level would be consistent with the market fully pricing an RBNZ rate cut in the year ahead, which we believe will not ultimately be delivered.

On Friday night, in the backdrop of positive equity markets the general bias was for slightly higher yields, assisted by the notably stronger than expected Q4 German GDP release.

Subsequent US data releases were less compelling, but failed to prevent US 10-year yields drifting up to close at 2.05%. This is their highest levels since early-Jan.

This should likely see some steepening pressure on the NZ curve at the open today.

Domestically, today’s BNZ PSI release will likely gain more than its usual amount of attention given the chunky decline in its sister PMI release last week.

But the bigger influence on NZ short-end pricing may be the release of Q4 retail sales where we expect solid volumes.