By Kymberly Martin
NZ swaps closed up a further 1-2bps yesterday. 2-year is now trading close to the middle of its range, at 2.63%. The market has further pared expectations of RBNZ rate cuts. It now prices a 15% chance of a cut in December and a 90% chance of a cut in the year ahead.
NZ bonds closed little changed yesterday, while AU bonds continue their recent sell-off, narrowing NZ-AU spreads. The DMO announced its tender for today at $100m of NZGB15s and $150m of NZGB23s.
Overnight, the Eurogroup/IMF negotiations on Greece faltered. The negotiations are set to resume after European policy makers now meet to agree on their seven-year budget plan.
This should provide numerous hurdles of its own so expect news flow from Europe to remain prominent.
However, the market appears to be cautiously optimistic on an eventual solution to negotiations. In addition, US data failed to provide any negative surprises overnight.
Demand for ‘safe haven’ US and German bonds diminished. US 10-year bond yields inched up to 1.68%.
Peripheral European spreads to German bonds narrowed a little further and CDS spreads (a market measure of default probability) declined.
In the day ahead there is no domestic data likely to impact on markets. However, the November release of the HSBC Chinese flash Manufacturing PMI will be important for market sentiment.
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