Yesterday, yields moved up across the NZ swap and bond curve, following offshore moves

Fixed Interest Markets by Kymberly Martin

Overnight, markets lost a bit of lustre, after the unexpectedly high take-up of the new ECB loan program..

New Zealand bonds had quite an orderly sell off yesterday, in line with moves in Australia. Yields closed up 4 to 7bps across the curve, with 10-year yields at 3.89%. The NZ-AU 10-year spread remains around 8bps. The DMO announced a surprisingly large tender for today (given last week’s weak demand) of $150m of 19s and $200m of 21s.

NZ swap yields closed up 4 to 8bps. The 2-year yield is at 2.72%. The market now prices only 4bps of rate cuts from the RBNZ in the year ahead. The market was buoyed by generally positive global sentiment and Asian equity market performance, as opposed to NZ specific data. The current account and credit card spending data was actually a little disappointing yesterday (see NZD section). The 2s-10s curve has steepened a little further to 135bps.

The evening started with optimism regarding the result of the new ECB lending program. German 10-year bond yields initially sold off, with yields climbing to 2.02%. Later, as the market absorbed the fact that such demand for loans was not necessarily a positive sign, German bond yields declined. 10-year yields fell to 1.93%. US equivalents bobbed around 1.94%.

After the release of the Bank of England minutes last night, UK 10-year gilts rose. Their yields pushed to the lowest on record, close to 2.0%. The minutes showed some policy makers had signaled further stimulus may be necessary, despite keeping asset purchases at £275b. Yields later inched up to 2.07%.

In the day ahead the local highlight will the release of NZ Q3 GDP. We expect a 0.7% outcome.

See our interactive bond rate charts here.

Kymberly Martin is part of the BNZ research team. 

All its research is available here.