Despite consolidation, swap yield trend is higher

Despite consolidation, swap yield trend is higher

by Kymberly Martin

It was a very quiet day, with bond yields unchanged. NZ swap yields inched a little lower. Overnight, offshore “safe haven” yields declined after disappointing PMI data.

NZ swap yields closed down around 4bps with the 2-year at 3.0%. Yields appear to be consolidating after their recent run higher, as the rise in global risk appetite has petered out.

The market has inched down its expectations for RBNZ activity in the year ahead, to 18bps from 25bps a week ago.

We believe the general path of swap yields is still upward and do not expect them to revisit lows. However, further consolidation around these levels is likely. The 2s-10s curve remains fairly steady at just under 145bps.

The DMO announced its tender for today of 100m 19s and 50m 23s. Given the modest size of the tender, and that bond yields are now around 30bps off their lows, demand should be decent.

Overnight, demand for US and German “safe haven” rose after weaker-than-expected European PMI data raised questions about the resilience of the real economy to financial stresses in the region.

German and US 10-year yields declined to 1.90% and 2.00% respectively.

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