by Kymberly Martin
There were sizable downward moves in NZ yields after Friday’s weak US payrolls number. Overnight, yields on global “safe haven” bonds fell further.
Returning from the Easter break, NZ markets opened down and saw one-way traffic most of the day. Most pressure was felt at the long-end of the swap curve where yields declined 13bps on the day. 2-year swap yields broke below support around 3.0%, closing at 2.96%.
5-year swap yields closed at 3.63% just on support levels. The risk is that given continued weak sentiment offshore overnight, yields break lower again today.
This is despite our expectation for a NZIER business opinion survey today that should show the economy is building up a head of steam. The market has revised down its expectations for RBNZ rate hikes in the year ahead to just 13bps.
NZ bond yields also fell 8-10bps yesterday. However, 10-year yields sit at top of ranges relative to their AU and US counterparts, at 33bps and 223bps respectively.
This suggests there is plenty of room for NZ yields to fall on a relative basis, and should support decent demand at tomorrow’s DMO auction.
Overnight, the mood toward Europe soured further despite Spain’s attempts to shore up sentiment by pledging to reduce the nation’s deficit to 3% of GDP next year.
The yield on Spanish 10-year bonds surged higher to 5.98%, back towards levels reached before the ECB first intervened to buy sovereign bonds, and launched the LTRO.
Spreads to German equivalents have risen to 430bps, not far from their November highs.
German and US “safe haven” 10-year bonds have seen their yields fall to 1.64% and 1.99% respectively. German yields are now sitting close to their Euro-era lows.
Look out tomorrow night for Italy’s next sale of bonds, as an indication of current European funding costs. Spain next sells 12-18 month bills on the 17 April.
Tonight, the focus will be on the US Fed’s Beige book on the economy. Given the market’s current nervousness it will be scoured for signs of weakness, especially in the labour market.
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