Friday, 05 February, 2021
NAB – RBA launches QE2, NZ market prices for tightening
Since the RBA’s announcement that QE would be extended the AU 10-year bond yield is up 8-9bps – but the spread to the US is barely changed. While QE may cap a rise in yields the current pace of purchases will not stop the rise if the macro backdrop/risk sentiment continues to improve.
Our bias is that the RBA does not shift its focus to the November 2024 bond but continues to target the April 2024 and as such lets YCC roll down the curve. The QE extension was put mostly in the context of currency pressures and actions of offshore central banks, whereas YCC has domestic economic goals.
There has been a decent repricing of the NZ curve over the past fortnight, following more very strong economic data. The market has largely abandoned OCR rate cut expectations and now fully-prices a 25bp OCR hike for the end of 2022. We have revised levels on most of our trade recommendations.
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