Greek bond swap deal triggers CDS insurance payments

by Kymberly Martin

It was a relatively quiet day on Friday, as NZ markets consolidated after Thursday’s RBNZ meeting.

On Friday night Greece announced its bond swap deal.

NZ swap yields closed up 1-2bps on Friday. 2-year swap yields closed down 5bps on the week, at 3.04%, comfortably in the middle of recent ranges.

The market has reduced its expectations for RBNZ rate hikes in the year ahead to 16bps. 10-year swap yields closed down 11bps on the week, also comfortably within recent ranges. This takes the 2s-10s curve back to 135bps.

Bond yields closed the week little changed at the short end. However, yields on NZGB21s were down 7bps on the week, at 4.08%.

The DMO bond tender on Friday attracted moderate demand at an average 1.9X bid-cover ratio. NZ 10-year bond yields now trade at 9bps and 207bps respectively above their AU and US counterparts.

On Friday evening, Greece confirmed that 85.8% of bond holders had accepted their bond-swap offer. Those who had not agreed “voluntarily” were then compelled by collective action clauses to accept the offer.

The Credit Default Swap (CDS) governing body, ISDA, determined that this would now constitute a “credit event”. CDS insurance payments will therefore now be triggered.

Early Saturday morning, US 10-year bond yields initially spiked higher after the release of stronger-than-expected US payrolls data. Their yields nearly touched 2.06%, but subsided later to close the week around 2.03%.

There is no global data of note today. Expect some further consolidation in NZ fixed interest markets. Watch for the response in European sovereign bond markets to the ISDA ruling, as more details are released. Tomorrow, both the Bank of Japan and US Fed announce interest rates.