By Kymberley Martin
The NZ swap curve flattened a little further on Friday.
US 10-year yields pushed a higher to end the week at 2.72%.
NZ 2-year swap closed up 2bps at 4.03%. We continue to see ‘fair value’ at around 4.30% but are aware the tug-of-war between domestic payers and offshore receivers continues.
However, heading into the next RBNZ meeting (April 24) we would not be surprised to see short-end yields drift higher.
Longer-end swaps declined on Friday to flatten the curve. 10-year closed down 1bps at 5.01%. The 2-10s swap curve is now back at 98bps, from highs of 106bps last week.
The yields on NZ 10-year bonds ended Friday 2bps lower, at 4.57%. Yields have traded a tight 4.50-4.65% range for the past ten weeks. Yields remain at the lower-end of the 4.50%-5.10% range we suspect will contain them in the coming 12 months.
Near-term, bonds are likely to be well supported as the next DMO issuance of nominal bonds is a month away. Meanwhile mid-April will bring a significant chunk of NZGB coupon payments.
On Friday night, in the backdrop of positive equity markets, US 10-year bond yields crept higher, to end the week at 2.72%. Yields have also maintained fairly tight ranges for the past ten weeks, between 2.57% and 2.82%. Whether this range is convincingly broken this week is likely in the hands of Friday night’s US payrolls data.
Today will bring the key domestic data release of the week, the ANZ business survey. Given its highly elevated levels it is difficult to envisage even further gains. However, the news for the rates market will likely be in the pricing intentions components of the survey. This is an indicator the RBNZ tracks as a precursor to future inflation.
Tonight, Fed Chair Yellen is scheduled to speak and the Chicago PMI to be released.
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