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NZ yields down again following offshore falls on back of renewed Euro crisis

Bonds
NZ yields down again following offshore falls on back of renewed Euro crisis

Fixed Interest Markets by Kymberly Martin

NZ yields gave up another 5bps as global risk appetite continued to wane. The RBA cut rates by 25bps, as expected. Overnight, global “safe haven” yields fell further.

NZ bond yields declined on little volume yesterday, following offshore moves. The unexpected announcement by Greece, that it planned to hold a referendum to vote on EU bailout measures, further dampened market spirit. It suggests uncertainty in the region will drag on. The yields on NZGB13s closed down 4bps at 2.74%. The yields on 17s and 21s fell 5bps to 4.01% and 4.44% respectively. NZ swap yields also declined 4-5bps along the curve.

Across the Tasman, the RBA cut rates by 25bps, as expected. It noted “subdued demand conditions and the high exchange rate have contained inflation”. The statement was fairly non-committal on future rate cuts. The AU 3-year swap yield declined almost 20bps from 4.48% to 4.30%. The market is pricing a further 115bps of cuts in the coming year. A 25bp cut is more than fully priced for the December meeting. Consequently, the NZ-AU 3-year swap spread narrowed from -110bps to -92bps. The market has marginally reduced rate hike expectations for the RBNZ in the coming year, to around 35bps.

Overnight, the Greek referendum issue dominated markets. US “safe haven” 10-year yields declined from 2.15% to below 2.00%. Early this morning, headlines suggested the referendum was unlikely to occur, given opposition to the idea within the Greek ruling party. US 10-year yields climbed back to almost 2.05%. German yields plummeted on their open, and drifted lower overnight to 1.77%, back toward the historic lows seen in September.

Italian 10-year yields spiked to 6.2%, the level they reached in early August before the ECB began buying Italian bonds. Peripheral European CDS spreads (a measure of default risk) also spiked.

Expect NZ yields to one again open under downward pressure given negative sentiment offshore overnight.

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See our interactive bond rate charts here.

Kymberly Martin is part of the BNZ research team. 

All its research is available here.

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