US 10-year treasuries push higher on improved sentiment; RBNZ inflation expectations firmer; market pricing in 2.5% OCR by mid 2016

By Kymberly Martin

The NZ swap curve steepened yesterday as longer-dated swaps closed up 5-6bps.

Overnight, as general market sentiment continued to improve, US 10-year yields pushed up to 2.10%.

The long-end of the NZ swap curve tracked AU equivalents higher yesterday.

his followed on from US yields and equities grappling their way back from the previous night’s intra-night lows. NZ 10-year swap ended the day up 5bps, at 3.53%.

The yield on NZGB2027s closed up 3bps, at 3.18%, rebounding from close to historic lows.

The next test for NZGBs will be tomorrow’s NZDMO tender of NZ$200m of NZGB2020s.

However, due to the shorter maturity of the bond on offer it will likely be more easily absorbed by the market, even if the current rebound in global yields remains in force.

NZ short-end yields were more stable yesterday. Inherently, shorter-dated swaps are more influenced by domestic developments than offshore events.

In this regard, yesterday’s RBNZ inflation expectations data did not provide the market with an excuse to increase its pricing of OCR cuts.

The survey showed 2-year-ahead inflation expectations firmed a little from 1.85%, to 1.93%. This level that will provide the RBNZ with some comfort as it strives to achieve its 2% inflation mandate.

NZ 2-year swap ended the day 1bps higher, at 2.83%. The market prices the OCR will be cut to around 2.50% in the first half of next year.

Overnight, general market sentiment improved, assisted by rate cuts from China’s Central Bank and better-than-expected German IFO survey data.

German 10-year yields rose from 0.60% to 0.73%. US equivalents have pushed up from 2.00% to 2.10%. These moves will likely apply some steepening pressure to the NZ curve today.


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

Daily swap rates

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