Markets more confident the US Fed will raise rates in 2015, but poor German data sees bond markets drift

By Raiko Shareef

NZ swap yields crept 0.5 bps to 2.0 bps higher yesterday amid light liquidity.

The 2-year swap rate closed at 4.25%, up 0.5bps for the day.

With the issuance flow of recent weeks having died down, there seems to be less interest to receive NZ rates, especially around the 5-year mark. In the absence of that downward influence on yields, the domestic mortgage books were dominant on the day with steady paying of fixed rates.

US Treasuries opened the week higher in yield, with the 10-year yield up 2bps.

In a very quiet Asian session, this was attributed to continued skepticism about how long the Fed can keep rates on hold for, in the wake of last week’s bumper US employment report.

Helping the cause was an early-session headline that Goldman Sachs had brought forward its projection for the first Fed Funds hike from Q1 2016 to Q3 2015 (i.e. joining consensus).

But that lift higher in yield was wound back as London and New York came to the party. Amid a relative dearth of data, commentators were fixated on a poor German industrial production outturn, which dampened investor appetite.

Equity markets drifted lower, and the US 10-year bond yield followed suit. It sits at 2.62% currently, down 2bps for the day.

Today, the QSBO is the only data of note for New Zealand. We expect the themes to be broadly positive on NZ, supporting yields here.