By Kymberly Martin
NZ swap declined another 2-4bps across the curve yesterday.
As we head toward next week’s RBNZ meeting 2year swap yields, at 2.58%, now sit 8bps off the bottom of their 5 month trading range.
Yesterday’s ANZ business confidence survey (26.4 vs. 17.2 previously) provided a pleasant surprise. However, it was not enough to halt the current inclination for yields to ease lower.
This trend is likely being influenced by the slip in AU short-end yields that has occurred over the past few days.
The market has increased its expectations of an RBA cut next week to 75%.
Yesterday’s DMO bond auction attracted a solid average 3.2x bid-to-cover ratio. However, the average successful bid was 4bps above the prevailing market yield at the time, suggesting demand was a little tepid.
Bonds closed flat on the day.
Overnight, global bonds did not participate in the more ebullient mood set by equity markets. The focus continues to be the US fiscal cliff negotiations.
US and German 10-year bond yields drifted a little lower to 1.61% and 1.37% respectively. The Italian bond auction went off without hitch. The sovereign was able to sell 10-year debt at the lowest yield in two years. It sold €3.9b of bonds at 4.45%, down from 4.92% at the last auction a month ago. Italian-German bonds spreads continue to narrow.
In the day ahead, local data should be of 2nd tier importance. There appears little to stop a further drift lower in yields.
Tonight, the market will remain fixated on the US fiscal cliff debate and key data releases on either side of the Atlantic (Eurozone unemployment, US personal spending, US Chicago PMI).
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