by Kymberley Martin
NZ yields declined again across the swap and bond curve yesterday, and curves flattened. Overnight, risk appetite continued to sag.
NZ swap yields declined around 5bps at the long-end yesterday, in sympathy with offshore moves, particularly declining AU bond yields. With this the driving force, the market completely overlooked the amazingly strong NBNZ business confidence survey yesterday afternoon (activity outlook 38.8 from 31.2 previously).
2-year yields continued to be very stable, closing down just 1bps at 3.06%. The 2s-10s curve closed at 142bps.
The DMO bond auction saw mixed demand with the 200m of 19s attracting a 3x bid-cover ratio. The 100m of 23s were greeted much less enthusiastically, only attracting 90m bids. However the 19s were over-accepted to make up for the short-fall.
Bonds rallied after the tender with longer-end yields down 7bps on the day.
Overnight, the pullback in risk appetite continued. In addition to European woes, Fed chairman Bernanke also spoke of the pace of recovery as being “extremely sluggish” and “still a long way from where we’d like to be”. US 10-year yields drifted lower to trade at 2.16%.
German equivalents drifted off to 1.80%. Spreads of non-core European bonds to German “safe haven” bonds continue to widen. From 278bps in mid-March they now trade at 340bps.
Tonight, all eyes will be on the Euro Finance minister’s meeting.
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