by Kymberly Martin
NZ yields moved higher yesterday, following improved global sentiment. Markets were relative quiet overnight…the calm before the storm?
NZ swap yields rose from 2bps at the short-end to 7bps at the long-end, on the back of previous moves seen offshore. This saw the 2s-10s curve steepen slightly to 130bps.
The 5-year swap yield closed at 3.36%, still around the middle of its recent 3.20-3.60% range. There are no obvious catalysts in the immediate future to force it above this range, though such levels offer good value for hedging, on our metrics.
NZ bond yields also closed up around 5bps across the curve. Demand at the DMO auction was fairly tepid at a 1.5x bid-to-cover ratio for the 50m of 17s and 100m of 19s offered. At these low levels of yield it will likely remain difficult to find abundant buyers. Offsetting this, is the fact that NZ 10-year bond yields still currently sit close to the top of recent ranges relative to both US and AU equivalents.
The new LGFA (Local Govt Funding Agency) has indicated it will hold its first bond tender on 15th February, with a likely amount of $250m. The aim is to provide a centralised (cheaper) funding source for local authorities. Once liquidity in these instruments increase they are likely to trade like semi-Government instruments in Australia.
A full announcement will be made next week by the LGFA. Initially we may see some selling of NZGBs against buying these new issues.
Overnight, in general markets were eerily quiet. There were few data releases of note, and no news from the Greek PSI negotiations.
US Fed Chairman, Bernanke’s comments this morning were also without drama. US 10-year yields drifted off to around 1.86% and German equivalents have returned to trade around 1.85%. Italian bond spreads narrowed further relative to German bonds, in a sign of less fear regarding debt sustainability in this key European country.
There will be little to drive the NZ market today, so expect some consolidation at these fairly low levels. Also keep an eye out for any comments from the Greek PSI negotiations that were scheduled to conclude before week end.
No chart with that title exists.
1 Comments
The US Fed owns 91% of all USG bonds in the 20-30yr bracket, with only 9% left to purchase operation twist (QEx) must be nearly finished.
As Barclays showed a few days back, under Twist, the Fed has monetized virtually all, and specifically 91% of all gross issuance in the 20-30 year maturity bucket
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.