By Kymberly Martin
It was a harsh day in NZ markets as they absorbed negative European sentiment. Overnight, markets were calmer; the eye of the storm?
NZ swap yields fell 10-12bps yesterday, back toward their lows. Markets gapped lower on the open and suffered a complete lack of liquidity. 2-year swap yields traded as low as 2.38% on the day before closing at 2.42%.
Some paying interest from the likes of corporates and balance sheets likely offset the receiving interest that was seen. The 2s-10s curve flattened to 126bps, now precariously at the bottom of its trading range since September last year.
Yesterday’s bond auction was well received. The $100m of NZGB23s were more than 5x bid. The $200m of 19s received $380m of bids. Yields that had been falling all day fell further after the auction, to close down 16-20bps.
NZ bond yield spreads to other relatively ‘safe’ global alternatives is likely supporting demand at auction. The NZ-US 10-year bond yield spread fell back to the lower end of its range at 184bps.
Overnight, there appeared to be a bit of a hiatus in market fears. There was no clear catalyst to point to, though there was nothing too dreadful in European data releases. Despite fairly flat equity markets, ‘safe haven’ US and
German bonds remain in demand. 10-year yields dropped to 1.20% and 1.56% respectively. German 5-year yields have fallen to 33bps, and 2-year yields to zero. However, Spanish and Italian bond yields dipped from recent highs.
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