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Aussie unemployment numbers surprisingly strong, helping NZ bonds rally despite DMO auction failure

Posted in Bonds

by Kymberly Martin

NZ yields moved a little higher off their lows. NZ 2-year swap yields closed up 5bps at around 2.57%, now about 12bps off their lows earlier in the week. Still, we continue to see plenty of receiving interest on the way up.

The rise in NZ yields was helped by the surprise fall in AU unemployment rate that saw AU 3-year swap yields rise 12bps on the day.

Markets now price around 20bps of rate cuts from the RBNZ by 12 months time, up from 36bps of cuts at the start of the week.

It was an interesting day in NZ bond markets. There was a failed DMO auction. Only 10m of bids were received for the 100m of NZGB19s offered, and these were not accepted.

The 100m of NZGBs received only 110m of bids.

Post the tender, NZ bonds sold off by around 5bps before the market started to rally back with AU bonds.

All up, NZ bond yields closed up 3-4bps. Relative to US equivalents NZ 10-year bond yields have now slipped to the lower end of their range, at 187bps. However, NZ bonds still appear attractive relative AU equivalents with NZ-AU 10-year spreads back at 40bps.

As market sentiment improved somewhat overnight, “safe haven” US and German long yields crept a little higher. Spanish - German 10-year bond spreads narrowed around 11bps in a sign of the market pricing less Euro-periphery risk.  

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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5 Comments

It was an interesting day in

It was an interesting day in NZ bond markets. There was a failed DMO auction. Only 10m of bids were received for the 100m of NZGB19s offered, and these were not accepted.
 
Just interesting. Is that it? 
 
We are talking about the stuff that gets monetised to pay our wages, bills and taxes.

Not since 2007, or next 1992

Not since 2007, or next 1992 has there been such a large underallocation. And absence of interest (bids).
http://www.nzdmo.govt.nz/publications/data
 
Hopefully it was just an administrative stuff up, but some DMO comment to clarify would be helpful.
 

To my uneducated eye it

To my uneducated eye it appears something of a red flag.
Meanwhile Fallow castigates Key over superan:
http://www.nzherald.co.nz/business-editors-picks/news/article.cfm?c_id=1...
Do you think John that perhaps we would not have to borrow so much if we sorted out superan?

So, what happens if we cant

So, what happens if we cant roll over our debt?  ie no one buys more bonds? default or print it?
Kind of wonder if we are close to the edge of a cliff we dont know about....maybe JK can see it...
regards

I tell you what Steven, the

I tell you what Steven, the serious bio security risk we are facing ain't going to help either.