Yields rise modestly in NZ, dip slightly in New York. Eyes on Australia for CPI and RBA speech

By Raiko Shareef

Short-end NZ interest rates rose modestly yesterday, likely on some profit-taking ahead of the RBNZ.

US bonds caught a slight bid overnight, as equity markets stumbled.

The local 2-year swap yield pushed 3 bps higher to 2.89%, the largest gain across the curve, as investors looked to pare positions ahead of the RBNZ’s decision on Thursday.

The rates market unequivocally expects at least a 25 bps cut, and has been flirting with the prospect of a 50 bps move. The market assigns roughly a 15% chance of that occurring. We’d tend to agree with that assessment.

US bonds benefited from a weaker equity market, after the S&P 500 stumbled within a hair’s breadth of the all-time high set in May. The focus is on earnings reports, with IBM’s disappointing the market overnight.

The slightly more defensive stance saw US bond yields dip, with the 10-year down 3 bps to 2.34%. Bond yields had been on the rise, with the steady tone of US data keeping investors focused on the prospect of Fed rate hikes. The absence of significant economic data in recent day has taken a little wind out of those sails.

We are likely to see some pick-up in short-end yields again, as the data calendar heats up next week.

Locally, all eyes will be across the ditch, where an inflation report and a speech from RBA Governor Stevens are due. Our NAB colleagues expect headline inflation to accelerate to 0.8% q/q, while the core measures are expected to remain steady at 0.6% q/q. There is no title available for Stevens’ speech, but he is expected to talk about current policy issues.

—————————

Raiko Shareef is on the BNZ Research team. All its research is available here.

Daily swap rates

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for(i=0;i

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