By Kymberly Martin
Taking their lead from offshore moves, NZ swap and bond yields closed down 6-11 bps yesterday.
Overnight, US 10-year yields pushed higher but have subsequently subsided to trade at 1.82%.
The NZ market remains a little quiet following the Easter break and ahead of the pending syndication of the NZDMO’s new nominal NZGB 2025.NZ1-2b will be issued, subject to market conditions. However, both swaps and bonds took their cue from yesterday morning’s post-Yellen decline in offshore yields.
NZ 2-year swap closed down 6 bps, at 2.22%, a new historic low. We continue to expect that 2-year swap can trade down toward 2.00% in coming weeks/months as the market increases expectations for future RBNZ rate cuts. Currently the market prices around 38bps of cuts within the coming 12 months. We would not be surprised to see this pricing extend to 50bps.
Today brings this week’s domestic data highlight, the ANZ business survey. The headline readings could move either way, but the rates market may give more attention to the survey’s one-year-ahead inflation expectations series. Inflation expectations are the RBNZ’s current focus, and this is one of the measures it tracks closely. A further fall could encourage the market in its rate cut expectations.
At the longer-end of the NZ swap curve, 10-year swap declined 10 bps yesterday, flattening the 2-10s curve to 79 bps.
US 10-year yields traded around the 1.81% level for much of the evening. They pushed higher early this morning after the release of the US ADP employment report that came in marginally ahead of expectation, and mimicking a push higher in the oil price. However, the push toward 1.86% was not sustained, as the oil price has subsequently declined. Yields have drifted back to 1.82% currently. They remain well within the 1.75-2.0% range that we see containing trading near-term.
Daily swap rates
Select chart tabs
Kymberly Martin is on the BNZ Research team. All its research is available here.
10 Comments
Check bank CDS spreads Iconclast, well higher in recent months and accordingly the price they're paying over the wholesale curve for their money. They've absorbed it to date, got some back by not passing on the same benefit to borrowers than the cost to savers with the OCR cut, not yet actually raising the rate to borrowers as is happening in Australia without OCR hikes, but suspect its coming unless the RBNZ can "out cut" the problem..
They (ANZ) complained about higher foreign wholesale funding costs - those that are not specified here.
In its statement announcing the 10 basis points cut to its floating and flexible home loan rates, ANZ said over the past 18 months offshore wholesale funding costs had increased significantly. International volatility had proved to be more than temporary, and these extra costs now need to be reflected in ANZ's lending rates.
I guess it's easy to manipulate the local market, but not the foreign lenders, who demand higher returns to compensate for increased credit risk exposure.
No - I am not a bank treasury funding officer, but one year US Libor rates have risen from ~70bps to 124 bps over the last year and the credit risk premium for Australian banks has certainly risen too - you need to investigate that factor yourself. Moreover NZD/USD cross currency swap counterparties are absent given recent sinking basis quotes - NZ banks are the basis payers. Read more and more
Hmmm- the swap to government spread is flat in the 10 year slot - where and how does the RBNZ explain the risk distortion away? Is ANZ a net payer of collateral to counterparties on the otherside of it's one plus $trillion IRS book. Is it a case of OBR bound depositors underwriting a possible dislocation for a foreign derivative counterparty's benefit?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.