By Kymberly Martin
Swap yields closed up 2bps across the curve yesterday. 2-year swap sits at 2.88% and the market prices around a 30% chance of a 25bps RBNZ rate hike by 12 months’ time.
The 2-10s curve remains close to the bottom or its 95-125bps range, at 102bps.
NZ bond yields closed up around 2bps. We believe the NZ bond rally has likely run out of steam, as the yield on 10-year bonds dropped to within 10bps of last year’s all-time lows.
This Friday, the DMO will auction $NZ120m of bonds in its first tender since the syndication of $2b of new NZGB2020 bonds. Participants should now have completed duration extension to match the recent index extension.
Therefore over coming weeks, as we move into fiscal year 2013/2014, we expect demand-supply dynamics should begin to ‘normalise’ after recent tightness. This should see higher NZ bond yields relative to US and AU equivalents and relative to NZ swap.
Overnight, despite disappointing US home sales data (-0.6%m/m vs. 0.4% expected) US 10-year yields again failed to break below 1.68%. They trade at 1.70% this morning.
In Europe, Italian-German 10-year bond spreads have narrowed to the lowest level since February after the re-election of President Napolitano. Despite the market’s positive reaction expect further wrangling ahead.
Today, all eyes will be on the April China PMI in the wake of the softer than expected Q1 GDP release last week.
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