NZ yields fall since end of 2014. US yields also slipped back after the rises induced by the unexpectedly strong US GDP data

By Kymberly Martin

Over the past fortnight, in holiday-thinned trading, NZ swaps have traded in fairly tight ranges.

NZ 2-year swap has traded between 3.80% and 3.88%, near the lower-end of this range at present.

The higher levels were reached towards the end of 2014.

NZ 10-year swap has traded between 4.10% and 4.20%, now at the bottom-end of this range.

With the 2-10s swap curve trading around 31 bps, we continue to see the bias for the year ahead toward steepening. Still, this will be dependent on some rise in US long yields to drag NZ equivalents higher.

Over the holiday season, US yields have traded a fairly wide range. From around 2.15%, US 10-year yields pushed up to 2.30% just prior to Christmas. This occurred as the latest reading of US Q3 GDP was shown to be revised up to 5.0%q/q. ann. (4.5% expected).

But the festive euphoria did not last and yields have subsequently slipped back to 2.11%. This is still some way above the level yields reached (circa 2.00%) prior to the Dec 17 US FOMC meeting.

It will likely be another relatively quiet week for NZ markets, still in summer holiday mode. The only local data to look out for this week is Wednesday’s ANZ commodity price index release and Friday’s building permits.

Tonight, German CPI (Dec) will be released. Following the New Year decline in US yields, German 10-year yields have also subsided, to new historic lows below 0.50%. Tonight’s data will likely only confirm that deflation remains one of the greatest risks for the Eurozone region at present.