By Kymberly Martin
The theme of consolidation continued in NZ interest rate markets yesterday.
2-year swap closed at 2.84%, having now traded in a tight range between 2.78% and 2.94% for the past six weeks.
We continue to believe the next significant move in yields will be higher, though there is no imminent catalyst on the horizon.
Over the past six weeks NZ long-end yields however have fallen, taking the 2-10s swap curve to the lower-end of its trading range, at 98bps.
We are approaching levels (95bps) that we would expect to see steepening.
Heading into this morning’s US FOMC meeting, US 10-year yields had slipped from 1.67% to almost 1.61% following the release of the US ADP employment report (119k vs. 150k expected). This raises the spectre of a disappointing payroll report on Friday.
At the meeting, the Fed stated it would maintain its asset purchases at its current pace of $85b per month, but stated; “The committee is prepared to increase or reduce the pace of its purchases to maintain an appropriate policy accommodation as the outlook for the labour market or inflation changes”.
Following the steady statement US 10-year yields actually rebounded from their lows to sit around 1.63% currently.
Today, the NZ DMO auctions NZ$200m of inflation-indexed bonds. The next offering of nominal bonds (NZ$120m) is not until May 17, helping to maintain the near-term tight supply-demand dynamics for NZ bonds.
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