By Kymberly Martin

NZ swap pulled back a little further yesterday, by 4bps across the curve.

Overnight, US long bonds rallied as risk appetite soured.

The NZ market has inched back expectations for a 25bps RBNZ rate hike by year-end to 75%. There was little local data to point to. Rather, yesterday’s moves were a continuation of the previous day’s paring of OCR hike expectations following prepared comments from the RBNZ Governor.

We now anticipate some flattening of the NZ 2-10s swap curve (117bps), as it nudges toward the top of the 95-120bps range we expect to hold for much of H1.

Yesterday’s DMO auction witnessed improved demand for NZ bonds as relative value is improving. The $100m of NZGB17s attracted a 3.3x bid-t-cover ratio, and the $100m of NZGB23s an 8.3x ratio. Successful ranges were also quite tight at 2-3bps, and close to contemporaneous market pricing.

Overnight, global sentiment waned a little further.

The response of US long bonds was interesting. Rather than selling off on the prospect of reduced future Fed purchases, bonds rallied on the generally weaker growth sentiment. US 10-year yields drifted lower to sit at 1.96% this morning. German bunds also rallied and peripheral European bond spreads widened a little.

There is little on the NZ data front today, but expect the NZ market to respond to the dampened sentiment overnight. Yields will likely open a little lower with a flattening bias to the curve.

Tonight, the key data release will be the German IFO business survey.