By Kymberly Martin
NZ swaps and bonds closed little changed on Friday. US 10-year yields ended the week lower at 2.62%.
NZ swaps and bond yields closed flat to down 1bps across the curve.
However, the limited move on the day disguised a fair amount of activity.
Initially swaps opened down following the previous night’s fall in offshore yields.
However, the flattening of the curve in recent days is attracting corporate interest to pay at the long-end. At the short end, we continue to see decent pay-side flow from both the mortgage book and SMEs.
NZGBs have remained steady, but not participated much in the recent offshore bond rally. The yield on NZGB23s remains at 4.58%. Consequently, the spreads to AU and US equivalents have widened to 66bps and 213bps respectively.
This Thursday’s DMO auction of $200m of NZGBs will be closely watched. It will be the first nominal bond auction in three weeks. Last week’s data showed non-resident holdings of NZ Governments bonds had slipped a touch to 62.8% from 63.3%. This is the lowest level since November 2012.
On Friday night, as equities declined further, US 10-year yields slipped from 2.65% to 2.62%. Yields are now nudging towards the lower-end of the tight 2.60%-2.80% range that has contained them for the past three months.
This week, curtailed by Easter Friday, there are a number of US data releases. These include retail sales, the NAHB housing market index and the release of the Fed’s Beige Book. However, none are likely to materially change the market’s view on future Fed activity. Rather the market will likely continue to closely watch the S&P500 earnings reporting season that is now well underway,
Domestically, the data highlight will be Wednesday’s Q1 CPI report. We anticipate a 0.4%q/q increase that would keep annual inflation at 1.6%. The RBNZ’s March MPS estimated a 1.7% outcome, though clearly the RBNZ’s focus is on future rather than current inflation.
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