By Kymberly Martin
NZ swap and bond yields closed 3-5bps lower. Overnight, US 10-year yields declined to 2.72%.
Following moves offshore, NZ yields inched lower across the curve yesterday, with a flattening bias to the swap curve. 2-year swaps now sits at 3.41%, around 15bps below mid-August highs.
The 2-10s curve is a little flatter at 156bps.
The market continues to price a first 25bps OCR hike by next March. Around 175bps of hikes are priced for the coming two years. We continue to see 200bps over this period.
NZ bond yields also closed down 4bps across the curve. The market is reluctant to rally too far from these levels.
However, the market may now be square to short bonds so may experience a bit of a squeeze if the rally in offshore bonds extends further.
Overnight, there were no major surprises from the German IFO or US data. However, a ‘risk off’ tone returned to markets in the face of rising tensions in Syria, with the threat of US-led intervention. In this backdrop ‘safe haven’ German and US bonds were in demand.
German 10-year yields declined from 1.90% to 1.85%. US equivalents pulled back from 2.80% to 2.72%.
This is a reminder that despite myopic focus on US QE ‘tapering’, US Treasuries will continue to play the role of ‘safe haven’ assets during times of heightened risk aversion.
Today, there are no domestic data releases. Expect the NZ market to follow the offshore lead and extend its recent pull-back in yields. The curve will also likely maintain a flattening bias on the day.
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