By Kymberly Martin
After Chairman Bernanke’s comments yesterday morning pushed back on the recent surge higher in yields, US 10-year yields fell from 2.68% to 2.58%. NZ yields then followed the move lower.
NZ swaps declined 6-9bps across the curve. The 2-10s swap curve closed a little flatter at 1.38%.
We have seen some receivers returning to the short to mid-curve. 2-year swap has now pulled back almost 20bps in the past few days, to close at 3.18%.
Market pricing is now consistent with around 135bps of OCR hikes in the coming two years.
We expect 200bps over this period, so we continue to see value in hedging at these levels. We would see any further pull-back in yields as an opportunity.
Likewise, if we see any receiving interest in the mid-curve (5-year) on the back of corporate/bank bond issuance, that results in a further pull-back in this part of the curve, we would also see this as an opportunity to enter hedges at lower levels.
We see the current pull-back in swaps as an inevitable dip along the path to higher yields by year-end and beyond.
Overnight, after all yesterday morning’s excitement, US 10-year yields settled into a 2.56-2.61% range, sitting around 2.57% currently.
German 10-year yields also traded sideways around the 1.62% level overnight. Italian-German spreads only widened marginally after the auction of Italian sovereign bonds. Italy sold only slightly less than its maximum target of €6.5b of bonds.
The bid-to-cover ratio was fairly slim however at 1.3x, suggesting reduced appetite in the wake of the recent ratings downgrade.
There are no domestic data releases today.
No chart with that title exists.
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.