By Kymberly Martin
The NZ swap curve flattened yesterday.
Overnight, US 10-year yields slipped from 2.26% to 2.23%.
Following the previous night’s slump in offshore yields, NZ 10-year swap closed down 3bps at 4.38%. However corporate paying interest is limiting the ability of receivers to flatten the curve. We think this will be an ongoing theme.
The 2-10s curve is back at 50 bps. Further near-term flattening will entice corporate hedging out the curve. We do not expect the curve to break below the October lows of 40 bps. NZ 2-year swap closed yesterday unchanged, at 3.88%.
NZGB yields declined around 4 bps across the curve yesterday. The yield on NZGB23s has fallen to 3.96%, back toward its mid-October lows (3.93%).
Overnight, US 10-year yields touched their highs around 2.26% before the release of a slew of US data. Looking across the raft of data from durable goods orders, personal spending, Chicago Manufacturing PMI and home sales they generally disappointed expectations.
While US 10-year yields have dribbled lower to 2.23%, German equivalents have fallen back toward historic lows at 0.74%.
Today, NZ trade balance data will be released along with AU private capital expenditure. The latter may be important in influencing the market’s expectations for RBA activity. Currently the market prices around a 60% chance the RBA will cut again by 2H next year.
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