By Kymberly Martin

NZ swap yields slipped a little from the upper-end of ranges yesterday.

Bonds rallied, outperforming key offshore counterparts.

In still thin holiday trading, NZ swap yields pulled back from near top of ranges. 2-year swap yields declined to 2.76%.

We continue to expect that a 2.50-2.90% range will contain 2-year swap for much of H1, ahead of higher yields into year-end. The 2s-10s curve has flattened a little to 112bps. This move will likely continue in sympathy, if US long bonds are able to rally from their recent sell-off.

There was a little more action in NZ bonds markets, with the entire curve rallying, and yields closing down 6bps.

With the next DMO auction not until later in the month the relative tightness of supply should keep a lid on NZ bond yields for now.

Long yield spreads to AU and US equivalents have narrowed.

US 10-year bond yields are consolidating just below the critical 1.90% level, failing again overnight to break higher.

Tomorrow night will bring the key BoE and ECB meetings, although the market expects neither to touch their interest rate settings.

Today, the US Fed’s Lacker will speak on the economic outlook. Although considered a hawk, Lacker is a non-voting FOMC member in 2013, suggesting his comments are less likely to cause a notable response in US yields.

Domestically, only building permits data will be released which are unlikely to move markets.