by Kymberly Martin
In a day of relatively quiet NZ trading day swap and bond yields closed a fraction higher. Overnight US 10-year yields rose to the top of recent ranges.
NZ short-end swap yields consolidated at levels where around 5bps of rate cuts are being priced from the RBNZ in the year ahead. 2 and 5-year swap yields closed at 2.82% and 3.44% respectively, comfortably within recent ranges.
There will be little to shift market pricing at the short-end ahead of Thursday’s RBNZ meeting. The meeting itself will likely be designed to have as little impact on the market as possible. Rates will be kept on hold at 2.50%. Comments should imply this is their path for the foreseeable future, until global uncertainty subsides.
NZ bond yields closed up 2 to 5bps across the curve, resulting in a slight narrowing of swap-bond spreads. NZ 10-year bonds yield 3.89%. In recent sessions NZ-AU 10-year bond spreads have fallen back to almost flat, as AU bond yields have risen quite steeply.
Overnight, negotiations between Greece and its private creditors were making “tangible progress” said French Finance Minister. In addition, Italian PM Monti, said he had high hopes of Eurobonds being issued in the future, though not before 2013. Italian 10-year bond yields have fallen from 6.50% to 6.11% in the past few days, from 7.10% just two weeks ago. Spreads to German bond have also narrowed from 4.88% to 4.13%.
US and German 10-year yields rose to 2.06% and 1.98% respectively, overnight. US yields are now close to the top of the 1.80% to 2.09% band they have traded since the start of November.
A break higher would open the way to a rise toward the 2.40% level, dragging NZ long yields with them.
NZ-US 10-year bond spreads have fallen to 1.83%, the bottom of their trading range for the past 3-years. Therefore, expect some upward pressure on NZ long-end yields, following on from the rise in offshore yields seen overnight. Expect some curve steepening as the short-end remains relatively well anchored ahead of Thursday’s RBNZ meeting.
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