Poor China trade data may take the edge off, but strong US jobs growth signals start of rising yields

By Kymberly Martin

The NZ swap and bond yields closed down 1-4 bps on Friday ahead of the US payrolls release.

On the strong release, US 10-year yields popped from 2.22% to 2.33%.

The NZ curve flattened a fraction on Friday as 10-year swap dipped 4 bps, to close at 3.54%. Moves at the short-end were more limited as the market remains reluctant to price much below a 2.50% OCR in this cycle.

But all the action came later. In the early hours of Sat morning, as US Oct payrolls came in head and shoulders above expectation, US yields gapped higher across the curve.

The market now prices almost a 70% chance that the Fed will raise rates at its 16 Dec meeting.

It looks as if something would now need to go severely wrong (in terms of very poor data or market volatility) in order to prevent a first hike by year-end. However, the response from equities was again fairly benign, as positive returns from growth sectors offset weak performance from rate-sensitive sectors.

US 10-year yields gapped form 2.22%, to end the week at 2.33%. This is its highest level since late-July, with range highs at 2.50% now beckoning. China trade data released over the weekend, showing weaker than expected imports, may marginally take the edge of risk appetite in our region at the open today. However, expect the NZ curve to experience steepening pressure today, given the moves in US yields on Friday night, mimicked by AU futures.

Otherwise there is only a smattering of domestic data this week, with Wednesday’s RBNZ Financial Stability Report likely to be a highlight.


Kymberly Martin is on the BNZ Research team. All its research is available here.

Daily swap rates

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