By Kymberly Martin
NZ swaps and bonds closed down 2-5bps.
Overnight, the decline in US yields continued.
Yesterday morning, NZ swaps opened down 4bps, following the previous day’s move offshore.
However payside flow quickly emerged to take advantage of the dip, including from the mortgage book and SMEs. This muted the decline in yields.
Swaps closed down 2bps in the front against 3bps lower in the 10-year. 2-year swap sits at 4.07% and the 2-10s curve at 98bps.
NZ bond yields also declined, closing down 4-5bps across the curve. The yield on 10-year bonds sits at 4.60%, within the tight 4.50-4.65% range it has traded since mid-January.
Overnight, in the absence of any major data flow, the mood in markets remained soggy. As equities provided negative returns, US Treasuries continued their rally. US 10-year yields declined from 2.73% to 2.68%, back toward the middle of the tight 2.60-2.80% range that has sustained since mid-January.
This continued slump in yields, which was mimicked by Aussie futures overnight, should see NZ long-end yields open down today. However, we expect any dips in swap will quickly draw payers out of the woodwork.
Also today will see the release of the Quarterly Survey of Business Opinion. We expect increased impetus across the range of activity and inflation gauges. This should be enough to prevent complacency from the market regarding the OCR outlook.
At present the market prices the OCR to be around 4.5% by the end of next year. We see it at 5% by this time.
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