Fixed Interest Markets by Kymberly Martin
It was a relatively quiet day in NZ markets. The short-end was quite well anchored, while long-end yields declined 4-6bps, resulting in some curve flattening.
Yesterday, 2-year yields remain fairly well anchored, supported by pay-side interest sub 3.10%. They closed at this level. Currently, 2-year yields appear quite range bound in a 3.00% to 3.25% band, which is consistent with the market’s pricing of just 30bps of rate hikes in the coming year. Ultimately, we believe these expectations will be revised higher. With no immediate catalyst on the horizon, however, we expect this range to hold for a while. 10-year swap yields fell 6bps, to 4.61%, following the moves seen offshore.
NZ bond markets saw little trading activity yesterday, although some switching out of NZGB 13s into 21s was noted. The yield on 13s was relatively unchanged on the day, while the yield on 21s fell 5bps to 4.40%.
As Australian 10-year bond yields have fallen precipitously in the past few days, the NZ-AU 10-year bond spread has rebounded from just below zero to 16bps currently. We expect the 0-35bps trading range to hold. The DMO bond tender was announced for today. 100m of 17s and 23s is offered, along with 50m of 19s and 21s.
Overnight, “safe haven” bond yields traded sideways. US 10-year yields are currently just above 2.0% and German equivalents at 1.83%. Italian 10-year bond yields remain worryingly high, above 6%. In the early hours of this morning, French-German 10-year bond spreads made a new high around 128bps. Speculation has resurfaced regarding a potential French sovereign downgrade.
Early this morning, the FOMC statement highlighted US growth had strengthened, but downside risks still abound. It did little to ruffle fixed interest markets. No mention of QE3 was made.
Attention may briefly return to home with NZ employment data released today. However, global risk appetite will continue to dominate NZ fixed interest markets, especially at the long-end of the curve.
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See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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