Interest in receiving in 3 to 5 year swaps keeping yields down; offshore, waning risk appetite took US and German yields down

Interest in receiving in 3 to 5 year swaps keeping yields down; offshore, waning risk appetite took US and German yields down

Fixed Interest Markets by Kymberly Martin

NZ trading was very quiet yesterday. Overnight, global risk appetite waned as markets digested the weekend’s EU summit announcement.

After rising on the open, NZ swap yields then failed to make any headway for the rest of the day. There remains a resilient offer tone in the mid curve that is keeping a lid on 3 to 5-year yields. There appears to be few payers coming the other way. 2-year swap yields closed up 1bps at 2.78% with the rest of the curve largely unchanged.

Similarly, NZ bond markets were lackluster yesterday closing up 1bps across the curve. The yields on 21s closed at 3.91%.

Overnight, rating agencies Moody’s and Fitch said the weekend’s EU summit did little to reduce the risk of credit downgrades for European sovereigns. It will review all ratings in Q1. It believes the EU announcement showed good intent but few solid measures for implementation.

The yields on Italian 10-year bonds moved higher again to 6.56%. Italy did manage to sell €7bn of 1-year bills at 5.95%, with a 1.92x bid-to-cover ratio. Demand for “safe haven” bonds rose as risk sentiment deteriorated, with the yield on both US and German 10-year yields falling. They now yield 1.99% and 2.02% respectively.

This evening we get the German ZEW survey that will show how the ongoing European crisis is affecting economic sentiment in the core. The NZ market will take its cue from moves offshore overnight, with yields likely to open under downward pressure.

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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