By Kymberly Martin
Following the Bernanke-inspired moves offshore, NZ swap and bond yields closed up 2-9bps yesterday. Curves steepened.
However, yesterday NZ 2-year swaps failed to break out of the fairly tight range (2.77-2.95%) that has contained it for more than two months.
2-year closed at 2.92%. The market prices around a 70% chance of a 25bps hike from the RBNZ by a years’ time.
NZ 10-year swap closed at 4.05% its highest level since late March. The 2-10s curve steepened to 113bps. We think steepening of the curve will likely now lose momentum, in the absence of US long yields breaking higher.
We are not convinced that US 10-year yields can yet break through the 2.0-2.1% window that has marked their top so far this year.
Despite the intensified debate around the tapering of US Fed asset purchases, US 10-year yields have failed to break above 2.06%.
Overnight, US housing data was generally better than expectation. US 10-year yields consolidated between 1.97% and 2.05%.
German 10-year bond yields are now almost 30bps off their early May lows. However, ‘peripheral’ European spreads to German equivalents have remained fairly static over the period.
However, there was around a 10bps widening in Spanish-German 10-year bond spreads yesterday as Spain auctioned over €4b of bonds. It paid around 20bps more at auction than it did a fortnight ago.
Tonight, all eyes will be on Europe with a slew of German data releases including the important IFO business survey.
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