By Kymberly Martin
NZ yields pushed higher across the curve yesterday, following the rebound offshore.
Overnight, US 10-year yields rose from 1.97% to 2.01%.
There was a relatively parallel shift higher in the NZ curve yesterday. NZ 2-year swap closed up 4 bps at 3.83%, while 10-year closed up 5 bps, at 4.01%.
As NZ markets return to full force from holiday mode, in coming weeks, we expect increased interest to extend hedging out the curve, given its current flatness.
This should create some modest steepening pressure, though any move will only extend if accompanied by a rise in offshore yields.
In this regard, US 10-year yields pushed a little higher in the backdrop of more buoyant risk appetite overnight.
The release of the US FOMC Dec Minutes created little response from markets yesterday morning. US 10-year yields pushed up from 1.97% to trade above 2.01% currently.
German equivalents rose from 0.47% to 0.51%. Meanwhile Greek bond yields have fallen back from recent highs. From 10.7%, 10-year yields now trade at 10.1%.
Tonight, with slightly less than the usual fanfare, US Dec payrolls will be released. Consensus looks for 240K, down from 321K previously.
A stronger-than-expected result could see the rebound in yields extend. However, risk lies with positioning, as data shows the speculative community is already heavily short US 10-year Treasuries. In fact short positions at the turn of the year were at their most extended since May 2010.
Daily swap rates
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8 Comments
So now justify your desperate cheerleading for higher rates just around the corner (for real this time!) with "people are coming back from their holidays"?
The chart in the following link shows that bank economists have been consistently and wildly incorrect in predicting higher bond rates over the past decade. It should be an embarrassment to them but of course they will maintain their blind spot to the last.
http://www.businessinsider.com.au/slok-10-year-rate-forecasts-2014-12
What banks do and what they get their economists to carnival bark are two distinctly different matters.
View large US bank US Treasury and Agency securities holdings - the constant purchase trend is unmistakable.
Checking back on this "analysis" 107 days after it was posted.
Claim: US benchmark rates (10-year bond yields) would increase from 2.01%, driving NZ rates higher, as a result of traders returning from the Christmas/NY break.
Reality: The US 10-year bond yield fell to 1.6% by the end of January and is still only hovering at 1.9%. NZ swap rates have fallen from 3.83% to 3.53% (2-year) and from 4.01% to 3.80% (10-year).
This is a good site overall, but much of the advice posted here by Kymberly Martin, Roger Kerr et al. would cause an investor to lose their shirt. Food for thought.
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