NZ yields followed their offshore counterparts lower yesterday. Overnight, US and German yields consolidated.

NZ yields followed their offshore counterparts lower yesterday. Overnight, US and German yields consolidated.

Fixed Interest Markets by Kymberly Martin

Yields were on a downward trajectory from the open. Receiving interest, and some flattening in the swap curve, flowed through to the bond market. The middle of the swap curve declined the most, continuing a recent trend. 5-year swap yields declined 6bps to 3.31%, a new historic low. The yield on 2-year swap declined 3bps to 2.73%. The market continues to price a 20%chance of a 25bp rate cut at the next OCR meeting. We do not expect any rate cuts. In a worst case scenario we simply see the RBNZ staying on hold for longer.

Bond yields drifted lower. The yield on NZGB 15s closed down 2bps at 2.76%. The yields on 21s fell 5bps to 3.87%, maintaining 10-year swap-bond spreads around 25bps.
Overnight, US and German 10-year bonds were fairly range-bound, both currently trading just under 2.04%. German bonds appear to have tentatively resumed their role as “safe haven” assets, after their brief fall from favour after the disappointing bond auction last month.
 
Italian 10-year yields are quietly inching higher again, to 6.69% currently. Both the EFSF and Spain recorded successful bond auctions this morning. Spain issued €5bn of 1-year bills with a comforting bid-to-cover ratio of 3.14x. The yield was 4.05%.

All eyes will now swivel across the Atlantic for the US FOMC meeting this morning. This will be dissected for any hints of QE3. There are no NZ data releases today, so expect the NZ market to respond to global risk sentiment today.

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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