by Kymberly Martin
Ahead of the Easter weekend NZ yields closed little changed. Friday’s US payroll data disappointed and global “safe haven” yields plunged.
NZ 2-year swap yields closed last week at 3.01%, above their critical support. The market continues to price slightly less than one 25bps rate hike from the RBNZ in the year ahead.
Last week’s DMO auction was met with weak demand. Only 135m of bids for the 100m of 19s were submitted, and 95m bids for the 100m of 23s offered. The range of successful bids for the 23s was wide at 4.24%-4.33%. This will make for opposing forces in the NZ bond market in the weeks ahead. Since Friday, US “safe haven” 10-year bond yields have fallen sharply back toward their old ranges around 2.0%.
This suggests downside to NZ bond yields.
However, offsetting this is the ongoing funding needs of the Government. It requires an average of more than $250m in bond issuance for the rest of the fiscal year.
On the announcement of US non-farm payrolls on Friday, US 10-year yields gapped from 2.20% to below 2.10%. Subsequently, in poor Easter liquidity they have drifted off to 2.04%. This is the top of their trading range before their mid-March surge higher.
German equivalents fell to 1.73%, not far off their all-time lows seen in September last year. Non-core European spreads widened. Spanish-German 10-year spreads are now at the highest level since last November, at 402bps.
The week ahead will likely be one where global events continue to swamp any developments domestically, despite the release of two fairly important NZ releases; Wednesday’s NZIER and Thursday’s NZPMI.
Given the renewed attention to the US recovery and particularly the labour market, focus will be on this Wednesday’s Fed Beige book on the economy, and Friday’s Michigan consumer confidence survey. As murmurs of QEIII will no doubt have resurfaced, post Friday’s data, the market will dissect any Fed member comments this week. We have Chairman Bernanke and member Fisher speaking today.
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