by Kymberly Martin
NZ swaps and bonds yields fell a little further yesterday. Overnight, global market sentiment stabilised.
The swap curve flattened slightly, as the short-end remained fairly steady ahead of today’s RBNZ meeting. However, the longer-end felt the effects of the previous day’s fall in long yields off shore. 2-year swaps closed at 3.04% and 5-year at 3.70%, still within their recent ranges of consolidation.
Today the RBNZ meet. Undoubtedly, they will leave rates on hold at 2.50%. In their full MPS they will publish their 90-day bank bill track. It is highly likely this will show the implied starting point of their rate hiking cycle has been pushed back from September this year.
However, the market is already, only pricing 25bps of rate hikes for the year ahead. It also prices an extremely slow ascent thereafter, with around a 4 - 4.25% peak, as late as the end of 2015.
Therefore, if the RBNZ’s implied track is any more assertive than this pricing, swap yields could actually see a nudge higher.
We continue to believe that any dips in swap yields in coming months will be relatively short-lived, given we are starting to see some healthy mortgage book paying interest.
Bond yields closed down 4 - 5bps across the curve. The yield on NZGB21s now sits at 4.12%, some 214bps and 15bps above US and AU equivalents. This is the top of the NZ - AU 10-year trading range since November.
This should help underpin demand for NZGBs at the next DMO auction on Friday (delayed due to MPS today).
Overnight, markets were a little calmer. US 10-year yields consolidated round the familiar 1.96% level. German equivalents drifted off toward their lows at 1.77%.
Ahead of today’s deadline, 58% of Greek bond holders have indicated they’ll participate in the offered debt swap.
This aims to reduce privately held Greek debt by over 50%. The government may now be able to use collective action clauses to force other bond holders to accept the deal. This would however, re-raise the prospect of Credit Default Swaps (CDS) insurance contracts being triggered, as the swap would not longer be deemed “voluntary”.
Fears for bond holders of other indebted European sovereigns could re-surface.
Today, all eyes will be on the RBNZ. This evening, the Bank of England and ECB and Bank of Canada announce rates. They are also expected to remain “on hold”.
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.