RBA's Stevens loses confidence in rate cutting. NZ-AU 2-year swap spreads narrow

By Kymberly Martin

NZ swaps closed down 2-3 bps yesterday.

Overnight, US 10-year yields have traded between 2.21% and 2.25%.

In the absence of domestic data yesterday, NZ yields traded only slightly lower. NZ 2-year swap closed at 2.71%, toward the lower end of its tight range of the past three months.

The NZ 2-10s curve sits at 88 bps. Over the medium-term we continue to look for further steepening within a 75-125 bps range.

Last night’s speech from RBA Governor Stevens provided some catchy headlines. He suggested that the market should “chill out” over the Christmas period, then come back and assess the data with respect to the need for further rate cuts.

Although he claimed he was more than willing to lower rates if he thought it would actually help he questioned whether “that is the best thing to do at any particular time”.

In recent weeks, as the market has reduced its expectation for further RBA rate cuts, NZ-AU 2-year swap spreads have traded down from 85 bps to below 60 bps. We now see this spread in a data-driven range of 50-90 bps in the months ahead.

Overnight, US 10-year yields traded a relatively tight range as the second reading of US Q3 GDP came in line with expectations, but consumer confidence was shown to have softened.

Yields currently trade at 2.23% as the market prices more than a 70% chance of a Fed hike at its December 16 meeting.


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

Daily swap rates

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