Fixed Interest Markets by Kymberly Martin
The relative quiet day in NZ fixed interest markets continued yesterday. Bond yields were virtually unchanged and swap yields ticked down around 2bps. Overnight, “safe haven” yields declined as risk appetite fell.
Yesterday, the yield on GBNZ 21s closed at 4.34%, showing little movement during the day. The DMO announced a modest auction for today of 50m 19s, 21s and 23s. The small offer may represent diminished fundamental demand. However, demand at today’s auction may be boosted as the GBNZ 11 matures next week. i.e the maturing cash will be looking for a home. NZ 10-year bond yields continue to trade more than 10bps above their Australian counterparts.
NZ swap yields also continued to tread water. 2-year yields remain close to the lower end of the recent range at 3.06%. Around 30bps of RBNZ rate hikes are priced for the year ahead. 10-year swap yields trade at 4.56%, with the 2s-10s curve remaining at 150bps.
Overnight, risk aversion engulfed the market once again. The announced resignation of Italian PM, Berlusconi, did little to convince the market that all is now well in Italy. Italian 10-year bond yields have risen to new euro-era highs around 7.3% (7% had previously been touted as the level beyond which debt servicing was unsustainable). In a sign of contagion, Spanish 10-year yields also spiked from 5.63% to 5.82%. Italian CDS spreads (a measure of default risk) also surged to new highs at 524bps.
Risk aversion saw demand for “safe haven” US and German bonds. US 10-year yields declined from 2.08% to 1.96%.The German equivalent, opened close to 1.88% before dropping to 1.72%, not far from late September lows.
Expect NZ yields to open under downward pressure, particularly at the long end, given moves overnight. Locally today, we receive the NZ PMI data and ANZ consumer confidence. Both should serve to provide more colour on how global ructions are impacting on the NZ economy. Indeed, the RBNZ has made future rate hikes contingent on global ructions having only a “mild impact”.
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See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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