by Kymberly Martin
NZ swap yields crept higher yesterday. Bond yields were relatively stable. Overnight, demand for “safe haven” US and German bonds faded.
NZ swap yields closed up around 4bps across the curve. 2-year closed at 3.05% and 5-year at 3.70% comfortably within their recent range of consolidation.
Bond markets were relatively quiet, with the yield on NZGB21s closing at 4.04%. The NZ - AU 10-year bond spread remains around 13bps.
After the US FOMC meeting the NZ - US 10 - year bond spread has dropped to 193bps. There is room for plenty of upside here.
Yesterday, the Bank of Japan left its official target rate at 0.10% as expected. Overnight, The German ZEW survey showed business sentiment had picked up in March, to its highest level since July last year.
German 10-year yields rose from 1.77% to 1.82%. On the other side of the Atlantic US retail sales (ex autos) grew stronger than expected in February, at 0.9%m/m (0.7% expected). US 10-year yields rose, touching above 2.08%.
Subsequently, this morning, the US Federal Reserve announced its interest rate decision. As expected, it kept rates at 0 - 0.25%. It also reiterated that conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through late 2014”.
However, the tone of comments on the economy was tentatively upbeat. It noted “labour market conditions have improved further…household spending and business fixed investment have continued to advance…strains in global financial markets have eased”.
There were still notes of caution on the US housing sector and that broad global risks still exist.
The statement discussed the potential for rising oil prices to impact inflation. However it concludes there remains a “subdued outlook for inflation over the medium run”. The Fed will maintain it current policy of extending the average maturity of its holding of Treasury securities.
After the announcement, US 10 - year yields spiked higher to around 2.12% currently, above the top of their trading range since November.
There are no NZ data releases today, but expect NZ yields to open higher following the US Federal Reserve meeting. Upward pressure on yields should be seen today, particularly at the long end.
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