By Kymberly Martin
NZ swap yields closed up 2bps across the curve yesterday. Short-end yields continue to consolidate after their recent dip lower.
The market prices around a 65% chance of a 25bps hike from the RBNZ in the year ahead. We expect a first hike in March next year.
The long-end of the NZ curve continues to be significantly influenced by moves in offshore (US) long bonds. Overnight, US 10-year yields slipped from 1.97% to 1.90% on heightened ‘safe haven’ demand.
Cyprus managed to cobble together a revised agreement for its ailing banks, but a heavy toll was taken on depositors with over €100k of deposits.
When the Dutch Finance Minister hinted this solution could be a template of things to come in Europe the market’s appetite for risk was knocked.
German 10-year yields slumped from 1.40% to 1.33%, back toward the bottom of ranges.
Peripheral European bond spreads ticked higher. Italy managed to sell its allotted bonds, but the 2014 maturity was sold at the highest yield since the end of last year.
Overnight, in a speech at the LSE in London, Fed Chairman Bernanke defended the use of monetary accommodation in advanced economies.
He argued such policies were not designed to weaken currencies, but to support “domestic aggregate demand in each country”. Certainly there were no hints of the Fed changing policy any time soon.
Today, the NZ curve will likely face downward pressure given the moves seen in global long yields overnight. Today’s domestic data (trade balance) is unlikely to be market moving, as most attention remains offshore.
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