By Kymberly Martin
NZ swaps closed down a further 2-6 bps yesterday.
Overnight, US 10-year yields pushed up from 2.35% to 2.39%.
Yesterday’s move lower in NZ yields was inspired by offshore moves at the end of last week, in the absence of any domestic catalysts.
The interest to receive NZ swaps was focused on the longer part of the. Some paying at the short-end helped to limit the decline in 2-year rates. 2-year swap closed down 3 bps at 4.01%.
We continue to see attractive paying opportunities on 2-year below 4%, given our ‘fair value’ sits above 4.4%.
The curve has flattened further as 10-year swap has declined 6 bps, to 4.58%. From 57 bps currently we continue to expect this curve to flatten to a trough of 40 bps by early next year. However, this trend will likely be interspersed with periods of short-term steepening, driven by rebounds in US Treasuries.
Overnight, broad market sentiment improved from Friday’s Ukraine-inspired nadir. While equity markets posted solid positive performances, US longer-dated Treasury yields pushed higher.
The drift higher in US 10-year yields was also assisted by the better-than-expected US NAHB housing market index.
US 10-year yields trade around 2.39% this morning.
Today the NZ Government will issue the PREFU. We do not expect any direct implications for the DMO’s bond issuance program.
Across the Tasman the RBA’s August Minutes will be released today.
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