By Kymberley Martin
NZ swap and bond yields closed little changed yesterday. Overnight, US 10-year yields dipped a little lower to 2.73%.
It was a fairly quiet day in NZ markets in the absence of domestic data. Despite the weaker-than-expected China HSBC flash PMI (48.1 vs. 48.7 expected), NZ swaps were little moved. 2-year and 5-year closed at 4.02% and 4.63% respectively.
We continue to see 2-year ‘fair value’ around 4.30%. The 2-10s swap curve remains at 106bps.
Meanwhile the yield on NZ 10-year bonds remains around 4.63%, in the lower-end of the 4.50%-5.10% range we believe will contain yields in the year ahead. Spreads to AU and US equivalents sit at 56bps and 189bps respectively. NZ-US spreads have traded a tight 180bps to 200bps range for most of this year. This range will likely extend toward 220bps as the year progresses.
Overnight, there were two key impacts on markets.
First, headlines suggested Russia is amassing its forces on the border with Ukraine. Second, the March US manufacturing PMI came in below expectation (55.5 vs. 56.5 expected). Combined these dampened general risk appetite, resulting in soft equity markets and a bid-tone for ‘safe haven’ US Treasuries. US 10-year yields sit a little lower, at 2.73%, this morning.
It is another quiet day on the domestic data-front. Across the Tasman, today’s highlight will be a speech by RBA’s Lowe.
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