The US market was closed for its Thanksgiving holiday which also means that tonight will be quiet as well, as many market participants take a 4-day long-weekend.
And so the focus was on Europe. There was little change in European yields, with Germany and UK 10-year bond rates down 1bp to 0.25% and 1.43% respectively.
Bloomberg reported that the ECB might look to delay its decision on its asset purchase program (QE) from December to January.
Rising bond yields mean that scarcity concerns in terms of its bond buying programme have eased so the urgency is no longer there to make a decision on “tapering” purchases. The market is highly sensitive to any decision here, with the experience of the US showing a massive bond market sell-off on the mere hint of tapering still fresh in trader's minds.
Overnight the ECB published its six-monthly Financial Stability report. It was a sobering read, with the report noting the risk of an abrupt global market correction had intensified on the back of widespread political uncertainty, posing a threat to banks, stability and economic growth. More market volatility in the near future was said to be likely and “vulnerabilities remain significant for euro-area banks”.
Germany's IFO business sentiment index was broadly in line with market expectations, unchanged from its highest level since April 2014.
Yesterday, the local market felt the fallout of the previous day's global bond market sell-off. There was a steepening of the yield curve, as short rates remain fairly well anchored by expectations of no change in NZ monetary policy for some time. The 2-year swap rate rose by 2 bps to 2.28% while the 10-year rate rose by 5.5 bps to 3.325%.
The DMO saw strong demand for its issue of $150m 2033 bonds, with bids totalling $496m at a yield of 3.55%. Rates rose across the curve, a result of the global selloff and the extra supply. The 10-year rate closed the day up 8 bps at 3.20%., its highest close since the end of January.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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