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Status quo with National re-elected; upcoming NZGB bond auction may get a demand boost; long yields may flatten

Bonds
Status quo with National re-elected; upcoming NZGB bond auction may get a demand boost; long yields may flatten

By Kymberly Martin

NZ swap closed up 1-3bps on Friday.

On Friday night, US 10-year yields drifted down from 2.65% toward 2.57%.

There was a general pay tone in the NZ market on Friday, although most activity was seen at the longer end of the curve. Some of the interest to pay at the long-end may be resulting from investors looking at spreads to offshore (AU in particular) that have come in sharply. These are beginning to look attractive to position for widening.

NZ 2-year swap closed up 1bps, at 4.06%, while 10-year closed up 3bps, at 4.70%. Similar moves were seen in bonds, with the yield on NZGB27s closing up 3bps, at 4.48%.

On Friday night, in the absence of key data releases and broadly flat equity markets, US Treasury yields drifted lower. The move was mostly seen at the long-end of the curve, resulting in a notable flattening of the US curve.

US 10-year yields declined form early evening highs above 2.65%, to end the week close to 2.57%. It appears the range-highs since May, of 2.68% will be difficult to break without a firm catalyst. However, we continue to see yields back at 2.75% by year-end before pushing higher next year.

Over the weekend, the NZ general election results showed the incumbent government (National) returned to power with greater support than at the previous election. It looks likely it will have a majority government.

This will broadly mean the policy status quo.

The removal of the uncertainty that inevitably comes with political change may add to the bid for NZGBs today. But this should anyway be solid given the rally in offshore bonds on Friday night, mimicked by Aussie bond futures. We expect lower NZ long-end yields, resulting in some curve flattening.

Aside from politics there is only the NZ Westpac Consumer Confidence index to look out for this morning. Tonight, ECB President Draghi speaks to the EU Parliament.

 
 
 
 
 
 
 
 

Daily swap rates

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Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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