NZ swaps closed 4-6bps higher yesterday. Overnight, US 10-year yields traded up from 2.22% to 2.25%.
NZ swap and bond yields rose across the curve yesterday, led by short-end yields.
The market appeared to be pre-positioning itself for a more balanced RBNZ in today’s speech (9am), as opposed to a Bank that will show an aggressive easing bias.
We would concur with this view, although we still see the RBNZ delivering at least one more 25bps rate cut and most likely two, taking the OCR back to 2.50%.
The NZ swap and bond curves also underwent ‘bear’ flattening yesterday as short-end yields rose further than long-end.
NZ 2-year swap closed up 6bps, at 2.93%, taking the 2-10s swap curve to 73bps.
Overnight, in the backdrop of more buoyant market sentiment, assisted by a rebound in equity and commodity prices, US yields pushed a little higher.
Presented simultaneously with a disappointing US consumer confidence number, but better than expected Richmond Fed manufacturing survey, the market reacted by not reacting. Currently, 10-year yields trade at 2.25%.
Since we haven’t mentioned Greece for more than a week now, it’s worth re-looking at peripheral Eurozone bond spreads.
Italian-German 10-year spreads are now back at 118bps, well below their average of the past year, and a sharp drop from early-July highs above 160bps.
The market appears to have quickly moved its focus elsewhere.
The market has refocused on the timing of the first US Fed rate hike. Tomorrow morning’s (NZT) US FOMC meeting may provide further clues.
We suspect the Fed will indicate it remains committed to hiking before year-end without tying itself down to any particular meeting. But even one 25bps hike before the end of the year is more than the market is currently pricing.