Market pricing in 50bps of cuts from RBA; standoff between Greece and its official creditors continues; 15bps climb in US treasury yields

By Kymberly Martin

NZ swap and bond yields closed down slightly across the curve yesterday. Overnight, US 10-year yields pushed higher from 2.0% to 2.15%.

Yesterday, NZ swaps initially opened a lower in the face of lack of resolution in Greek negotiations. Later, on the release of RBA Minutes (marginally more hawkish than anticipated), NZ swaps pushed a little higher along with AU equivalents.

Overall, NZ swaps closed flat to down 1bps across the curve. Meanwhile AU 3-year swap closed up around 3bps from its afternoon lows, at 2.29%. However, the market still prices almost a further 50bps of RBA rate cuts by year-end.

Overnight, as the standoff between Greece and its official creditors continued, Greek 10-year bond yields moved up from 9.5% to 10.1%.

German yields also moved higher, after the release of the ZEW survey. From evening lows of 0.32% the yield on German 10-year bonds now trade at 0.37%. More striking was the move in US equivalents. From 2.00%, US 10-year yields now trade at 2.15%, their highest level since early-Jan.

This move overnight should exert upward pressure on the NZ curve today, as should some relief from the solid GDT auction overnight.

Current headlines also suggest Greece may be limping toward negotiating a 6 month loan extension. Combined, these events should see a steeper NZ curve today, in the absence of domestic data releases.

All eyes tonight are on US Fed Minutes. If these imply the Fed is steadily moving toward a June hike (our central view), US yields likely have further to run in the near-term. US 10-year Treasuries will likely find some support if yields pop their head above 2.20%.