Markets ignore big trade deficit and push local rates higher with a steepening bias; curve close to cycle trough?

By Kymberly Martin

On Friday, NZ swap and bond yields followed offshore moves higher. Yesterday NZ celebrated Labour Day.

US 10-year yields drifted a little lower overnight to trade at 2.26%

Offshore moves were the biggest driver of local yields at the end of last week. Yields took little cue from NZ trade data that showed a larger than expected deficit. Rather they pushed higher, with a notable steepening of the swap curve.

NZ 2 and 5-year swap closed at 3.92% and 4.20% respectively. The 2-10s swap curve now trades at 51 bps, from mid-October lows around 40 bps.

We expect corporate paying interest will continue to extend out the curve.

We believe we have come close to cyclical trough on this curve. We do not envisage it inverting in this cycle.

Last night, as equities sold off modestly, US and German 10-year yields declined.

The ECB has also given some indication of its pace of asset purchases as it confirmed it settled €1.7 bln of covered bonds last week, in its latest attempts to stimulate the economy.

German 10-year yields slid from 0.91% to 0.87%. US equivalents subsided from 2.29% to 2.26%.

There are no domestic data releases due today. Tonight, US durable goods, consumer confidence and the Richmond Fed Manufacturing index will be released.