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US yield curve flattens with global forces supporting US bond market. NZG 10yr bonds record large price gain in past 5 days

Bonds
US yield curve flattens with global forces supporting US bond market. NZG 10yr bonds record large price gain in past 5 days

By Jason Wong

The US yield curve is flatter, with the 2-year Treasury rate up a touch to 0.75% and the 10-year rate down 2 bps to 1.56%.

Strong US consumer confidence figures did not seem to have much impact on the market, with much of the movement occurring earlier in the trading session.

US 10-year Treasuries are likely finding support owing to global factors.

Germany’s 10 year bond rate has fallen over recent days to minus 0.14%, its lowest level since 11 July.  There’s been some attention on the German banking sector, with speculation that Deutsche Bank will have to raise fresh capital and this has seen German banking stocks under considerable pressure.  These fears have helped support the Bunds market.

At the same time Japan’s 10-year rate has been drifting lower, following the BoJ’s new yield curve target framework introduced last week.  While it currently targets a 10-year rate close to zero, the actual rate has drifted down to minus 0.07%, its lowest level for the month to date.

These global forces are helping support the US bond market even as warnings on Treasuries continue. Overnight, Blackrock, the world’s largest bond manager, reiterated its caution on US Treasuries, suggesting that “it is time to rethink the role of US Treasuries in portfolios”.

Lower global rates are feeding through into the local bond market.  Yesterday, NZ 10-year government bonds fell by another basis point to 2.345%, taking the cumulative fall over the past five trading sessions to 26 bps.

Throughout this period a flattening bias has been evident in the swap curve.  The 2-year swap rate was up 0.5 bp to 2.015% while the 10-year rate fell by 1 bp to 2.485%.  The 2s10s spread has contracted from the mid-50s last week to 47 bps.

The paucity of data releases continues in the day ahead, with nothing of note during the local trading session and tonight we see Germany consumer confidence and US durable goods orders data.

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Jason Wong is on the BNZ Research team. All its research is available here.

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1 Comments

Lower global rates are feeding through into the local bond market. Yesterday, NZ 10-year government bonds fell by another basis point to 2.345%, taking the cumulative fall over the past five trading sessions to 26 bps.

Hence, by definition forecast economic growth rates are absolutely stagnant. What hope for a CPI inflation utopia with a mid-point ridiculously set at 2.0%? Another rate cut will surely misdirect credit towards unproductive and deflationary sovereign IOU purchases as speculators scramble to over capitalise the 2027's $4.5% annual coupon payments. Taxpayers are such a a lucky bunch.

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