Outlook for the NZ yield curve

We have just published the following research.

Data Flash (New Zealand)

Outlook for the NZ yield curve

* The NZ yield curve has steepened markedly since the events of 11 September. The outlook from here is uncertain. More rate cuts may be supportive of further steepening, but the curve already factors this in to at least some degree. The prospect of a slowdown in growth is also not supportive of a steeper curve.

* Yet, as evident in the price action following the initial strike on Afghanistan, further shocks may well prompt yield curves to steepen. At the same time, the additional bond supply flowing from the GSF sell down may trouble the long end at a time when investment into peripheral markets is not favoured.

* All up, we do not think the present environment is one where a large amount of risk capital should be allocated to curve trades. Our preference is to wait until the outlook becomes clearer.

David Plank, Fixed Income Strategist

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