by Kymberley Martin
NZ swap yields declined 2 to 4bps across the curve yesterday. The 2-year sits mid-range at 3.07%. We continue to see “fair value” around 3.20%.
We also see it well supported on dips toward 3.00%, given an expectation that retail “fixing” flows will continue to hit the market. The 2s-10s curve has flattened slightly in recent days to 147bps as the long end is impacted by the pull-back in US long yields.
NZ bond yields also closed down 2-3bps across the curve. NZ 10-year bond yields at 4.18% now trade at the upper end of their -10bps to 15bps range relative to AU equivalents. This suggests, if AU long yields continue to decline they will likely drag NZ equivalents lower.
The DMO announced its tender of 200m of 19s and 100m of 23s, above its required weekly “run rate” to meet its funding needs. We expect demand to be solid if unspectacular.
Overnight, in the backdrop of muted risk appetite and soft equity markets, US 10-year bond yields consolidated around the 2.20% level.
German equivalents drifted off from 1.90% to 1.83%. Non-core European spreads widened a little. Despite comments from the Italian PM, Monti that Eurozone woes were “almost over” the market appeared unconvinced.
Elsewhere ECB’s Weidmann made such comments as, “all the money we put on the table will not buy us a lasting solution to the crisis”.
Today, a solid NBNZ business confidence survey should help underpin short-end yields in their current range. The long-end will continue to take its cues from offshore developments. Tonight, we get EU consumer confidence and comments from Bernanke and other Fed officials.
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