Fixed Interest Markets by Kymberly Martin
The NZ market was remarkably quiet yesterday, despite ongoing uncertainty in Europe. Overnight, offshore “safe haven” yields failed to rise. Italian 10-year bond yields made new highs at 6.77%.
NZ bonds yields were virtually unchanged on the day, ahead of the DMO auction announcement today. By contrast, Australian 10-year yields declined around 7bps on the day to 4.21%. This resulted is a widening of NZ-AU 10-year yield spreads to around 14bps.
Swap yields also showed few signs of life yesterday. 2-year yields remain fairly well anchored, at 3.07%. The market continues to price around 30bps of RBNZ rate hikes in the coming year. The longer end of the curve has shown a bit more volatility in recent weeks, whipped around by news flow and sentiment relating to Europe. Yesterday, 5-year and 10-year swap yields declined 2bps to 3.85% and 4.59% respectively.
In the early hours of this morning, “safe haven” US and German 10-year yields attempted to moved higher, before drifting South. US 10-year yields currently yield 2.0% and German equivalents 1.80%.
Overnight, the Italian Prime Minister, Berlusconi, failed to gain a majority in a key vote approving historic accounts. There are now urgent requests for Berlusconi to finally resign, in order for Italy to regain credibility in its ability to implement austerity measures, and service its debt.
The yield on Italian 10-year bond yields reached a new high of 6.77%, and the spread to German bunds is close to a euro-era high, at over 490bps.
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See our interactive bond rate charts here.
Kymberly Martin is part of the BNZ research team.
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