China trade data shifts market sentiment. NZGB market readies for 2033 syndication. Eyes on Wheeler speech and Fed Beige Book

By Kymberly Martin

NZ swap and bond yields closed down 2-3 bps yesterday.

Overnight, US 10-year yields traded between 2.04% and 2.08%.

NZ yields showed an inclination to trade lower from yesterday morning but gained a helping hand from the afternoon’s China trade data. These showed greater than expected weakness in imports, although slightly less negative exports than expected. 

NZ 2-year swap ended the day at 2.71%, with the 2-10s curve at 84 bps. This remains mid the 60-115 bps range we expect to prevail in the months ahead. Our preference remains to position for steepening on any dips toward the lower-end of this range.

NZGB yields also declined 2-3 bps yesterday. Investors appear to be starting to consider value in longer-dated NZGBs, on spreads, given their recent sharp sell-off in anticipation of the imminent NZGB 2033 syndication.

Overnight, in the backdrop of slightly softer equity markets, but a modest rebound in commodity prices, US 10-year yields traded a relatively tight range. They sit at 2.06% this morning. German equivalents failed to show much of a response to a disappointing German ZEW survey, actually trading modestly higher. From intra-night lows near 0.56%, German 10-year yields now sit at 0.59%.

This morning the domestic market will focused on a published speech from RBNZ Governor, Wheeler, entitled “Some Reflection on the World of Central Banks”. Tonight, US retail sales data will likely be the primary driver of US yields. With US 10-year yields now near the lower-end of ranges, and speculative positioning fairly neutral, we would anticipate a stronger response (rise in yield) to a positive surprise. The Fed’s Beige Book will also provide the latest background information on the Fed’s economic thinking.

Kymberly Martin is on the BNZ Research team. All its research is available here.