By Kymberly Martin
NZ swaps and bond yields closed down 1-5 bps overnight, with a flatter curve. Overnight, US 10-year yields traded between 1.52% and 1.58%.
NZ yields took their prompt from the post-FOMC fall in offshore yields. The greatest pressure was felt at the long-end of the curve. NZ 10-year swap traded down to a new low of 2.73%.
At the short-end of the curve, yields were briefly boosted yesterday morning after a surprisingly strong Q1 GDP release. NZ 2-year swap ultimately closed only 1 bps lower, at 2.56%. The market prices just over a 50% chance of a rate cut at the RBNZ’s 11 Aug meeting. It also priced that the OCR will ultimately trough around 1.95% within the year ahead.
RBA’s Kent contributed to the debate on inflation targets yesterday during questioning after a speech in Brisbane. He said he sees no need to make adjustments to the RBA’s inflation target. He believes the inflation target has quite a degree of flexibility. He also suggested a lower target runs the risk of lowering inflation expectations.
The Bank of Japan announced no additional stimulus measures at its meeting yesterday. Japanese 10-year yields have traded down to historic lows below -0.2%.
Overnight the Bank of England left its cash rate unchanged at 0.5% and its asset purchases steady. The accompanying statement highlighted the risks ahead if the UK votes to leave the EU. It said a vote to leave could lead to a materially lower path for growth and a notably higher path for inflation. It also stated it could pose risks to the global economy via “financial market and confidence channels”. However, a later scheduled speech by the BoE’s Governor was cancelled after a pro-EU law-maker was shot and killed when meeting with her constituents. UK 10-year yields have made new lows below 1.07%.
In this backdrop, US 10-year yields also dipped overnight, touching lows below 1.52%. This was their lowest level since their historic lows below 1.4%, of July 2012. However, they have now rebounded to trade at 1.57%. Overall, we see further downward pressure at the long-end of the NZ curve today.