By Kymberly Martin
The NZ curve flattened again yesterday.
Overnight, US 10-year yields slipped to 2.34%.
NZ 2-year swap closed up 1 bps, at 4.05%, supported by paying via the mortgage book at the short-end.
We continue to believe it will be difficult for 2-year to break much below 4.0%, unless there is a significant change in tune from the RBNZ at its 11 September meeting.
Meanwhile, receiving at the longer end of the curve saw 10-year swap close 1 bps lower at 4.56%
There was also good demand for longer dated NZ bonds.
The yield on NZGB23s and NZGB27s closed down 4 and 5 bps, at 4.08% and 4.27% respectively. Yields now sit at their lowest level since July last year. At that time they had just burst higher from all-time lows in early May.
We are aware that NZGB yields are unlikely to rebound notably until they are led by a similar move in US Treasuries. There is no obvious catalyst at present. Still, we see huge capital and currency risk, for offshore investors buying longer-dated NZGBs at these levels.
In a now familiar display of disinterest, US Treasuries showed little response to upward revisions to Q2 GDP overnight, or much stronger than expected July pending home sales.
Demand for Treasuries was likely assisted by geopolitical headlines from the Ukraine regions overnight. US 10-year yields slipped from 2.35% to 2.32% before later rebounding to 2.34%.
Today it will be all eyes on the NZ ANZ business confidence survey, and the release of household credit numbers. AU credit numbers are also due.
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