NZ swap and bond yields closed down 1-7 bps yesterday in a ‘bull’ flattening.
Overnight, US 10-year yields traded a wide range between 2.04% to 2.12%, at the lower-end at present.
In the absence of domestic data releases, NZ yields took their cue from offshore moves yesterday. Following the prompt from declining US long yields and weak equity markets, NZ 10-year swap closed down 7 bps. At 3.50%, it is now within spitting distance of historic lows touched in late August.
NZ credit spreads also continued to be marked wider yesterday. This is consistent with the moves we have been highlighting in the AU iTraxx index (measure of AU corporate default risk). It has now widened to above 140, its highest level since June 2013, and historically associated with wider NZ credit spreads.
Overnight, as US equities have attempted to stabilise, US Treasuries have traded a wide range. 10-year now trades at 2.06%, having touched intra-night highs toward 2.12%.
Today, the ANZ business confidence index will be released. It has potential to stabilise or even perk up a little after its recent precipitous fall, though likely remain below long-term average. It is unlikely to cause a sharp response from short-end rates. The market appears comfortable to continue to price a 2.40-2.45% OCR by mid next year. This seems a fair representation of current risks. Tonight the market may use the US ADP employment report to gauge risks around Friday’s closely-watched US payrolls report.
Kymberly Martin is on the BNZ Research team. All its research is available here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.