NZ swaps closed down 2-4 bps on Friday and there was a strong rally in NZ bonds following the previous night’s offshore moves.
On Friday night, US 10-year yields traded between 2.26% to 2.28%.
NZ yields slumped on Friday following the previous night’s decline in US yields and commodity prices.
Notably, NZ 5-year swap broke below 3.20%. From a technical perspective, the 2012 lows around the 3.00% level now appear to beckon. Meanwhile 2-year swap ended the week at 2.88% as the market prices that the OCR will be cut to around 2.55% by April next year. Our central case remains the OCR will be cut to 2.50% by Oct this year.
On Friday afternoon the DMO’s tender of NZ$200m of NZGB2020s attracted very strong demand. The average successful bid yield for the bonds (2.73%) was below where the bonds traded pre-tender. In addition, the auction attracted a 5.3x bid-to-cover ratio.
On Friday night, US yields dabbled sideways as Eurozone and US PMI data came in marginally either side of expectations. However, they dipped a little into the close following softer than expected US home sales data. US 10-year yields ended the week at 2.26%, at the lower end of the 2.20-2.50% range we see containing yields in the near-term.
It is a quiet start to the week domestically, with not too much on the local agenda until Wednesday’s published speech by RBNZ’s Wheeler.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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