By Kymberly Martin
NZ swaps closed down 1-4bps yesterday.
Overnight, US 10-year yields drifted slowly higher ahead of the release of Fed Minutes early this morning. After the release US 10-year yields dropped back to 2.68%.
With little in the way of domestic data yesterday 2-year swap closed little changed at 4.0%. However the longer end of the curve declined after the pricing of a 10-year Kauri bond issue from Rentenbank.
This saw 10-year yields decline 4bps to 5.00%.
This should entice corporate paying back to the long-end of the curve, now that 10-year is back at the bottom of its three month range. In addition, the likes of the 7-10s curve have flattened significantly, also potentially tempting borrowers further out the curve.
The yield on NZ 10-year bonds closed down 3bps at 4.57%. The spread to US and AU equivalents sits at 201bps and 60bps respectively. Both are within well-worn ranges. The NZGB 2020 bond remains ‘cheap’ on the curve but is likely to remain so given this is where new issuance from the DMO is concentrated.
Overnight, there was little on the US data agenda. Treasury yields drifted higher ahead of the release of the Fed’s March Minutes. The response to the release was abrupt.
Treasury yields gapped lower across the curve. The Minutes showed that although the Fed’s median projection of interest rates rose at the last meeting some members expressed concern the forecasts “could be misconstrued as indicating a move by the committee to a less accommodative reaction function”. That did not seem to be the committee’s intention at all. Several members thought there was considerably more slack in the labour market than indicated by the unemployment rate.
US 10-year yields plunged from 2.72% to 2.68% while US 2-year yields fell from 0.41% to 0.36%.
Today the BNZ PMI will be released. The key event across the Tasman will be the release of the AU employment report. Tonight the Bank of England announces rates and the ECB publishes its monthly report.
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