By Kymberly Martin
NZ swap yields declined in sympathy with Australian equivalents following the disappointing AU employment report. Yields fell 4-6bps across the curve, following AU swap yields lower.
The market has increased its expectations of RBA rate cuts in the year ahead from around 90bps to more than 100bps. NZ 2-year yields are sitting at the bottom of their recent 2.65%-2.85% range. A break lower today would put the next support level, just above 2.55%, in sight.
NZ bonds also rallied on the back of the AU data, closing down 4-7bps, with a flattening bias. The DMO tender saw mixed results with a strong 3.2x bid-to-cover ratio for the 150m of NZGB23s offered. By contrast, the 100m of NZGB17s only saw a 1.6x bid-to-cover ratio. The curve flattened into the close mirroring demand seen at the tenders.
‘Safe haven’ US and German bond yields continued their path of least resistance, lower. With 10-year yields now at 1.48% and 1.25% respectively they are within 5-10bps of their all-time lows. A break of these early June lows would likely see further downward pressure on the long-end of the NZ curve.
Today, key Chinese data releases will set the tone for the Australian market, with likely spill-over to NZ markets. The consensus expectation for Q2 China GDP is for a slight downshift to 7.7%y/y from 8.1% previously.
Tonight, an Italian bond auction will act as a good barometer of current appetite for EU sovereign risk.
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