Yet another contained day for local interest rates, with no cues given from closed offshore markets on Monday.
Overnight, US bond yields fell sharply at the longer-end, amid growing nervousness about a Greek default.
The NZ interest rate curve steepened slightly yesterday in a generally quiet session.
The 2-year swap dipped by 1 bp to 3.38%, and looks to remain contained ahead of the 11 June MPS. The longer-end drifted higher, causing the 2s-10s to steepen to 64 bps, its highest level since September.
We think the curve is likely to consolidate in a 40-65 bp range, having run higher from 6 bps in January.
Long-end US bond yields were dragged lower overnight on reduced risk appetite, at least partly driven by concerns that Greece might not strike a deal with its creditors by week’s end. Most analysts expect a deal by Friday, and we’d pick a sharp drop in risk appetite if a deal fails to materialise.
30-year Treasury yields fell by a sharp 9 bps to 2.89%, while 10-years Treasuries shed 7 bps. Short-end bond yields were supported by strong US data (see Currencies), which helps firm the case for a Fed Funds Rate hike in September.
The data calendar is relatively light over the coming day. Australia’s Construction Work Done may well be the highlight, as a component of next week’s Q1 GDP report.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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