By Kymberly Martin
NZ swaps inched up a further 2-4bps yesterday. The market now prices around an 85% chance of an RBNZ cut in the year ahead, with a 15% chance of a cut in December.
The 2s-10s curve has steepened a little further to 110bps, toward levels (115bps) that we would consider position for flattening.
The DMO tender attracted solid demand with a 4x bid-to-cover ratio for the $100m of NZGB15s offered. The NZGB23s attracted a lower 2.7x bid-to-cover ratio, and the large spread on the bids suggests some were somewhat speculative.
NZ bond sold-off however over the course of the day, in line with their AU counterparts. Yields closed up 2-5bps over the bond curve.
Overnight, market sentiment was broadly stable. The release of the HSBC China Manufacturing PMI helped to calm nerves, as it rose back into expansion at 50.4.
Eurozone PMI provided little surprise as they stablilised but remained firmly in contraction. German 10-year bond yields paddled sideways just above 1.43% while trading in US bonds was halted for Thanksgiving Day.
Spain managed to sell €3.9b of bonds at auction, more than the maximum target of €3.5b.
The Spanish Treasury is actually running ahead of its financing needs and is now pre-funding 2013. Spanish-German 10-year bond spreads narrowed further to 423bps, well down from their mid-July highs close to 650bps.
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