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NZBG 2027 syndication launched; AU markets pricing in more of a chance of an RBA cut; UST yields rise

Bonds
NZBG 2027 syndication launched; AU markets pricing in more of a chance of an RBA cut; UST yields rise

By Kymberly Martin

NZ swaps pushed higher by 3-5bps yesterday.

US 10-year yields were on a steady upward path overnight to 2.56%.

Domestically, we continue to see consistent paying activity coming from the mortgage and SME sectors.

NZ 2 and 5-year swap closed at 4.24% and 4.64% respectively. The 2-10s curve remains at 70 bps.

Yesterday morning the NZ DMO launched its NZGB 2027 bond via syndication. It will price today, although early indications are that demand is fairly strong. We suspect the $2 bln maximum target will be issued.

There was some selling of NZ bonds ahead of this deal, with yields pushing higher by 5 bps across the curve. The yield on NZGB 23s now sits at 4.45%.

The RBA left its cash rate unchanged at 2.5% yesterday, retaining its neutral bias. Its statement was almost identical to last meeting, whereas the market appears to have expected some softening of its tone.

The market inched down expectations for a rate cut in the year ahead. It now prices around a 30% chance of a 25 bp cut. NZ-AU 2-year swap spreads have pushed higher, to 148 bps. We expect this spread to peak around 160 bps by year-end.

US 10-year yields were on the ascent from early evening consistent with the more buoyant market mood.

The release of the June ISM manufacturing index (55.3 vs. 55.9) and prices paid component (58.0 vs. 60) were both slightly below expectation. Still this was not sufficient to throw yields off their upward path.

US 10-year yields trade at 2.56% this morning.

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA

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