A long-awaited report on Australian wages produced only a minor surprise with growth of 2.1 percent, just topping market forecasts of 2.0 percent. Growth in the private sector lagged at 1.9 percent, far short of the 3.5 percent recently touted by the Reserve Bank of Australia (RBA) as a reasonable target.
As a result, Australian government two-year notes are paying 33 basis points less than US paper. This time last year, they were offering 54 basis points more. Likewise, cash rates in New Zealand are not expected to rise anytime soon, with the central bank there projecting a chance of a first move by mid-2019.
Yields on kiwi two-year debt are thus 38 basis points under those in the United States. Australian government bond futures edged up further in the wake of the wages news. The three-year bond contract added 2 ticks to 97.840, while the 10-year contract firmed 1.5 ticks to 97.1200.
New Zealand government bonds also gained, nudging yields down as much as 3 basis points at the long end. "The data are still consistent with the considerable slack in the labour market despite the step-up in the pace of jobs created," said Robert Thompson, macro rates strategist at RBC Capital Markets. "While the trend is now headed in the right direction, the pace of gains is still very low, and we are some way off triggers for a hawkish tilt on the back of the wages story."