By Kymberly Martin
Swap yields closed down 3-4bps on Friday. Having gapped lower on the open, following the ECB announcement, yields inched higher into the close.
2-year yields closed at 2.78%, close to familiar resistance levels. The 2s-10s curve is slightly steeper at 98bps, and we maintain a steepening bias in the near-term.
NZ bond yields also closed down 3-6bps across the curve on Friday, in response to waning global risk appetite.
However, on Friday night market sentiment shifted. The market started to look for more positives in the ECB’s announcement. It then received a boost from the stronger-than-expected US payrolls data.
Demand for ‘safe haven’ US and German bonds fell. 10-year yields rose steadily from 1.48% to 1.56% and from 1.25% to 1.42% respectively. Italian and Spanish bond spreads to German bonds narrowed 40-50bps.
Tomorrow, the RBA announces its cash rate target. The market places around a 15% chance of a 25bps cut. The market also expects a total of 75bps of cuts in the year ahead. We think these expectations are too aggressive.
Today, NZ yields will likely open higher, after the improved sentiment on Friday night. The local focus this week will be Thursday’s labour market report.
Assuming some stability in global sentiment heading into this release, it may be sufficient to nudge market OCR expectations higher. Currently, the market sees the OCR unchanged in a year’s time. We see a first RBNZ rate hike in H1 2013.
No chart with that title exists.
1 Comments
I would say the odds of that happening are very high, certainly I cant see 12 months....but then there seems to be an extradionary ability to hang on by the finger nails....however thatts with IMF and EU assistance. If the IMF abandons Greece, and that looks likely then the EU will follow I think. Silly, really 3 years ago if they had wiped Greece's debt we would be at the cusp of EU breakup now I think....
NB Once Greece goes you have to wonder how long Spain will last....its just as dire I think...
regards
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.