by Kymberly Martin
NZ yields eased back a little from their previous day highs. Overnight, a deal was finally struck between Greece and the Troika with respect to a further bail out package.
The rise in NZ swap yields temporarily ran out of steam yesterday.
Two-year yields closed down 2bps and 10-year down 4bps. 2-year yields sit at 3.04%, and the market continues to price just under 25bps of rate hikes from the RBNZ in the year ahead. We expect 75bps.
Swap yields have moved rapidly (40-50bps) higher since the start of the month, so some consolidation would not be surprising ahead of the next leg up.
Yesterday’s RBNZ 2-year-ahead inflation expectations showed an easing from 2.80% to 2.50%. This is a moved in the right direction, leaving the RBNZ comfortable to sit and watch offshore developments for a while longer. However, it is worth remembering these still sit at the top end of the Bank’s target bank (1-3%) for inflation.
Bond yields closed virtually unchanged yesterday. Today the DMO will announce its bond tender. The recent run up in yields back to November levels should help demand at auction. At some point next month we also expect the LGFA to return to markets with another bond auction. By our estimates, NZLGFA 15s and 17s now trade around 73bps and 107bps respectively over equivalent NZGBs. Spreads have narrowed slightly since the inaugural tender last week.
The market’s reaction to the much anticipated Greek announcement was relatively muted. However, non-core European bond yields fell with spreads to German “safe haven” bonds narrowing. Italian 10-year bond yields (5.44%), and spreads to German bonds are now at the lowest level since September. US “safe haven” 10-year yields rose from 2.0% to 2.07%, when trading resumed after Monday’s holiday. This is the top of their range since November. A break higher would be significant.
There are no key NZ data releases today. Expect some consolidation in NZ markets after their recent strong run.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.