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Despite weak German confidence, 10yr bund yeld at 1.06% vs UST 10yrs at 2.43%; big LGFA tender today

Bonds
Despite weak German confidence, 10yr bund yeld at 1.06% vs UST 10yrs at 2.43%; big LGFA tender today

By Kymberly Martin

NZ yields closed flat to down 1 bps yesterday.

Overnight, US 10-year yields consolidated around 2.43%.

NZ 2 and 5-year swap sit at 4.07% and 4.43% respectively. Both remain some way below ‘fair value’ based on our forecasts that see the OCR at 5.0% by 2016. However, there is a lack of obvious catalysts for a push higher at present.

There are no domestic data scheduled today, although tomorrow’s retail sales data will likely serve as a reminder of the underlying strength of the economy. However, even here, consensus is already expecting 1.0%q/q (we expect 0.8%) so potential for upside surprise is limited.

AU swaps initially pushed higher yesterday after the NAB business survey showed AU business conditions at their highest levels since early-2010. However, swaps later returned to earlier levels. AU 2-year swap sits at 2.76%, as the market continues to price around a 50% chance of a 25 bps cut from the RBA in the year ahead.

Overnight, despite a weak German ZEW survey, German bund yields largely traded sideways, although still close to historic lows. The yield on 10-year bunds sits at 1.06% while that on US equivalent sits at 2.43%.

Today, the LGFA (Local Government Funding Agency) will hold its tender for $285m of bonds, including $110m of the new 2020 maturity.

Tonight German CPI will be in focus along with the UK employment report, the Bank of England’s inflation report and US retail sales data.

 

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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