Fixed Interest Markets by Kymberly Martin
NZ bond yields declined another 5bps across the curve. Smaller moves were seen in swap yields, resulting in wider swap-bond spreads. 10-year EFP is now at 17bps.
NZ bond yields declined yesterday, narrowing the gap to their Australian counterparts. As the yield on 21s declined 5bps to 4.56%, it is now only 5bps above the equivalent Australian government bond yield at 4.51%. A contributing factor to yesterday’s bond rally was the weaker than expected NZ Q3 CPI release (0.4% q/q vs. 0.7% expected).
Contributing to the recent rally in bonds may also be next month’s maturity of the NZGB11/11. We suspect prudential books may have started replacing their holdings with longer-dated bonds.
In other bond news, as part of the Pre-Election Economic and Fiscal Update, the Treasury confirmed the 2011/12 bond issuance programme at $13.5b. It stated the extent of its pre-funding in 2010/11 has covered the additional costs associated with the Canterbury earthquakes.
Swap yields had a quieter day declining just 1-2bps along the curve. The market showed little reaction to the weaker-than expected CPI release and continues to price just under 40bps of rate hikes in the coming year. 2-year swap yields dipped to 3.15%.
The CPI release suggests to us that the RBNZ has a little more lee-way to wait and see the impact of global events on the NZ economy. We have therefore pushed back our first expected RBNZ rate hike until June 2012.
Tomorrow, we will get word from the horse’s mouth on interest rate settings, when the RBNZ releases its October OCR review. It’s a given they will remain on hold. They will also likely do their best to provide a bland non-market moving statement.
Overnight, US and German “safe haven” yields declined as market optimism faded somewhat. US 10-year yields pulled back from2.26% last night, to 2.16% currently. German yields declined from 2.14% to 2.06%.
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See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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