By Kymberley Martin
NZ swaps and bond yields pushed up by 2-9bps yesterday. Overnight, US 10-year yields pushed up to 2.61%.
The NZ 2-10s swap curve steepened by 4bps as 2-year rose just 2bps to 3.96%, but 10-year pushed up to 4.82%. Contributing to the move were the previous night’s moves in US Treasuries, and the release of stronger than expected NZ building data for 1Q (16.0% vs. 5.5% expected). 10-year swap now sits 15bps above last week’s lows.
Meanwhile, NZ government bond yields also followed offshore moves higher. Yields closed up 6-9bps. The yield on NZGB23s now sits at 4.35%. This resulted in swap-bond spreads contracting 3-4bps. Spreads to US equivalents sit at 189bps. A move toward 180bps would suggest positioning for spread widening.
Across the Tasman, yields were boosted by the stronger than expected AU 1Q GDP release (1.1%q/q vs. 0.9% expected). This helped AU yields push higher. For example, 3-year swap rose from 3.03% to 3.09%.
Overnight, the release of the softer than expected US ADP employment report briefly saw US yields gap lower. However, this proved short-lived. The release of later data, including the non-manufacturing ISM (56.3 vs. 55.5 expected) helped US 10-year yields to push up from 2.57% to 2.61%.
Tonight it will be all eyes on the ECB, with the Bank of England’s meeting a mere sideshow. Expectations are high the ECB will cut both the refi and deposit rate while potentially implementing additional stimulus measures.
Tonight, Fed member Kocherlakota is also scheduled to speak on interest rates.
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