By Kymberly Martin
NZ bond and swap yields moved higher yesterday following offshore moves on Friday. Overnight, US 10-year yields crept higher, to 2.21%.
Yesterday, NZ bond yields closed up 6bps across the curve. Despite this, NZ long bonds appear to be undergoing a period of consolidation after their rapid sell-off throughout May.
The yield on NZGB23s closed at 3.58%. NZ-AU and NZ-US23 spreads now sit at 28bps and 154bps respectively.
NZ swaps closed up 5-10bps with a steepening bias to the curve. 2-year swap closed at 2.97% with the 2-10s curve at 114bps.This remains well within the 95-125bps range we believe will hold for much of this year, before a prolonged flattening unfolds in 2014.
Overnight, markets were fairly calm after their recent volatility. ‘Safe haven’ US and German bonds continued to sell-off. The yield on US 10-year bonds rose from 2.16% to sit close to the top of its recent range, at 2.21%, this morning. German 10-year yields rose as high as 1.60%, their highest level since late February.
Global credit spreads that had narrowed in the immediate aftermath of Friday’s US payrolls were back in consolidation phase overnight. Credit markets however remain vulnerable to moves in underlying yields.
Overnight, rating agency S&P announced it has changed the US sovereign’s credit outlook to stable from negative whilst maintain its AA+(long term) rating. The agency has seen some improvement on the US political front, in terms of being able to negotiate deals. It also sees some progress toward fiscal adjustment.
Today, there is little on the domestic calendar. Across the Tasman the NAB business confidence survey will be the key to watch. The Bank of Japan will also announce rates today.
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