Draghi confirms buying sovereign bonds an option for the ECB, Japan's new recession weights on markets, US 10-year yields push up

By Kymberly Martin

NZ swap and bond yields closed down 1-3 bps across the curve.

Overnight, US 10-year yields pushed up to 2.34%.

The release of the very strong Q3 NZ retail sales figures yesterday (1.5% q/q vs. 0.8% expected), caused NZ swaps to nudge a fraction higher. However, sentiment was then overridden by the release of the very disappointing Japan Q3 GDP data (-0.4% q/q vs. 0.5% expected).

NZ yields drifted slightly lower into the close, in sympathy with offshore moves. NZ 2-year swap closed at 3.95% while 10-year closed down 2 bps at 4.45%.

In the early hours of this morning ECB President Draghi made his quarterly testimony to the European Parliament. After much recent market speculation he explicitly stated that sovereign bond purchases were an option for the Bank, saying “other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds”.

With German yields already at rock-bottom levels, the impact was felt on peripheral Eurozone bonds. For example, Italian 10-year yields that had ended last week at 2.35%, slipped to 2.31%.

US yields pushed higher in the early hours of this morning, perhaps on the prospect ECB stimulus will reduce downside global growth risk.

The push higher in yields occurred, despite a generally disappointing set of US data releases overnight. US 10-year yields have pushed up from 2.28% to trade at 2.34% currently.